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:
- The stock was sold by three or more insiders within one month.
- The stock was not purchased by any insiders in the month of intensive selling.
- At least two sellers decreased their holdings by more than 10%.
Splunk (NASDAQ:SPLK) provides software solutions that provide real-time operational intelligence.
Insider selling during the last 30 days
Here is a table of Splunk's insider-trading activity during the last 30 days by insider.
|Name||Title||Trade Date||Shares Sold||Rule 10b5-1||Current Ownership||Decrease In Ownership|
|Godfrey Sullivan||CEO||Dec 26-Jan 15||70,000||Yes||2,554,240 shares + 2,527,515 options||1.4%|
|Thomas Neustaetter||Director||Dec 26-Jan 15||6,000||Yes||73,103 shares||7.6%|
|Thomas Schodorf||SVP||Dec 24-Jan 14||30,748||Yes||281,911 shares + 168,498 options||6.4%|
|Steven Sommer||SVP||Jan 7-14||63,098||Yes|
|Leonard Stein||SVP||Jan 13||10,000||Yes||87,774 shares + 198,528 options||3.4%|
|David Conte||CFO||Jan 8||22,918||Yes||110,000 shares + 445,834 options||4.0%|
|Nicholas Sturiale||Director||Jan 6||6,250||Yes||4,708 shares + 25,000 options||17.4%|
|Guido Schroeder||SVP||Jan 3||8,000||Yes||114,782 shares + 578,000 options||1.1%|
There have been 217,014 shares sold by insiders during the last 30 days. All these shares were sold 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 Splunk's insider-trading activity by calendar month.
|Month||Insider selling / shares||Insider buying / shares|
There have been 2,694,394 shares sold, and there have been zero shares purchased by insiders since January 2013.
Splunk reported the fiscal 2014 third-quarter, which ended October 31, financial results on November 21 with the following highlights:
|Net loss||$16.6 million|
Splunk's guidance is as follows:
|Revenue||$88-$90 million||$291-$293 million|
|Non-GAAP operating margin||6%-8%||~0%|
|Company||SPLK||CA||CPWR||IBM||Industry Average (Application Software)|
|Qtrly Rev Growth (yoy):||0.51||-0.01||0.03||-0.04||0.22|
|PEG (5 yr expected):||-318.68||0.83||2.92||1.24||1.27|
Splunk has the highest P/S ratio among these four companies.
Here is a table of these competitors' insider-trading activities during the last 12 months.
|Company||Insider buying / shares||Insider selling / shares|
Only Splunk has seen intensive insider selling during the last 30 days.
There have been eight different insiders selling Splunk, and there have not been any insiders buying Splunk during the last 30 days. Two of these eight insiders decreased their holdings by more than 10%. Splunk has an insider ownership of 29.30%.
There are 13 analyst buy ratings, nine neutral ratings, and one sell rating with an average price target of $75.08. Before going short Splunk, I would like to get a bearish confirmation from the Point and Figure chart. The four main reasons for the proposed short entry are negative earnings, relatively high P/S ratio, bearish analyst price targets, and the intensive insider-selling activity.