Seeking Alpha
Long/short equity, insider ownership
Profile| Send Message|
( followers)  

In this article, I will feature one tech stock that has seen intensive insider selling during the last 30 days. Intensive insider selling can be defined by the following three criteria:

  1. The stock was sold by three or more insiders within one month.
  2. The stock was not purchased by any insiders in the month of intensive selling.
  3. At least two sellers decreased their holdings by more than 10%.

Adobe Systems Incorporated (NASDAQ:ADBE) operates as a diversified software company worldwide.

(click to enlarge)

Insider selling during the last 30 days

Here is a table of Adobe's insider-trading activity during the last 30 days by insider.

NameTitleTrade DateShares SoldRule 10b5-1Current OwnershipDecrease In Ownership
Robert BurgessDirectorJan 1094,832No50,629 shares65.2%
Mark GarrettCFOJan 711,899Yes50,107 shares19.2%
Shantanu NarayenCEOJan 250,000Yes231,672 shares + 488,300 options6.5%
David WadhwaniSVPDec 1928,010No25,875 shares52.0%
John WarnockDirectorDec 1620,000No784,211 shares2.5%
Edward BarnholtDirectorDec 1650,000No25,124 shares66.6%

There have been 254,741 shares sold by insiders during the last 30 days. Mark Garrett and Shantanu Narayen sold shares pursuant to a Rule 10b5-1 plan.

SEC Rule 10b5-1 is a regulation enacted by the United States Securities and Exchange Commission (SEC) in 2000. The SEC states that Rule 10b5-1 was enacted in order to resolve an unsettled issue over the definition of insider trading, which is prohibited by SEC Rule 10b-5. After Rule 10b5-1 was enacted, the SEC staff publicly took the position that canceling a planned trade made under the safe harbor does not constitute insider trading, even if the person was aware of the inside information when canceling the trade. This staff interpretation raises the possibility that executives can exploit this safe harbor by entering into 10b5-1 trading plans before they have inside information while retaining the option to later cancel those plans based on inside information.

For example, a CEO of a company could call a broker on January 1 and enter into a plan to sell a particular quantity of shares of his company's stock on March 1, find out terrible news about his company on February 1 that will not become public until April 1, and then go forward with the March 1 sale anyway, saving himself from losing money when the bad news becomes public. Under the terms of Rule 10b5-1(b) this is insider trading because the CEO "was aware" of the inside information when he made the trade. But he can assert an affirmative defense under Rule 10b5-1(c), because he planned the trade before he learned the inside information.

In general, it is a safer way for an insider to sell shares pursuant to a Rule 10b5-1 trading plan than without it.

Insider selling by calendar month

Here is a table of Adobe's insider-trading activity by calendar month.

MonthInsider selling / sharesInsider buying / shares
January 2014156,7310
December 2013163,0100
November 201357,7400
October 20136,175,0000
September 201396,0560
August 201365,0000
July 2013813,9390
June 2013450,2760
May 201300
April 2013324,0730
March 2013465,9620
February 201300
January 2013284,1775,000

There have been 9,051,964 shares sold, and there have been 5,000 shares purchased by insiders since January 2013.


Adobe reported the fiscal 2013 full-year, which ended November 29, financial results on December 12 with the following highlights:

Revenue$4.1 billion
Net income$290.0 million
Cash$3.2 billion
Debt$1.5 billion


Adobe's guidance is as follows:

Revenue$950-$1,000 million$4.1 billion
Non-GAAP EPS$0.22-$0.28$1.10
GAAP EPS$0.02-$0.08$0.27

(click to enlarge)

(Source: Earnings presentation)


Adobe's competitors include Apple (NASDAQ:AAPL), Microsoft (NASDAQ:MSFT), and Avid Technology (OTCPK:AVID). Here is a table comparing these companies.

Market Cap:29.73B479.51B300.86B286.10M
Qtrly Rev Growth (yoy):-
Gross Margin:0.860.380.740.52
Operating Margin:
Net Income:289.98M37.04B22.64B-69.93M
PEG (5 yr expected):4.510.871.88N/A

Adobe has the highest P/S ratio among these four companies.

Here is a table of these competitors' insider-trading activities during the last 30 days.

CompanyInsider buying / sharesInsider selling / shares

Only Adobe has seen intensive insider selling during the last 30 days.


There have been six different insiders selling Adobe, and there have not been any insiders buying Adobe during the last 30 days. Four of these six insiders decreased their holdings by more than 10%. Adobe has an insider ownership of 0.38%.

Before entering short Adobe, I would like to get a bearish confirmation from the Point and Figure chart. The two main reasons for the proposed short entry are relatively high P/S ratio, and the intensive insider-selling activity.

Source: Adobe: 6 Different Insiders Have Sold Shares During The Last 30 Days