Proofpoint: 4 Different Insiders Have Sold Shares This Year

| About: Proofpoint, Inc. (PFPT)

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%.

Proofpoint (NASDAQ:PFPT) provides threat protection, regulatory compliance, archiving and governance, and secure communication solutions worldwide.

Click to enlarge

Insider selling during the last 30 days

Here is a table of Proofpoint'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
Philip Koen Director Jan 16 10,000 Yes 0 shares + 25,000 options 28.6%
Gary Steele CEO Jan 15 20,000 Yes 161,689 shares 11.0%
Eric Hahn Chairman Jan 15 10,000 Yes 768,885 shares 1.3%
David Knight EVP Jan 3 6,000 Yes 0 shares + 165,752 options 3.5%
Click to enlarge

There have been 46,000 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 Proofpoint's insider-trading activity by calendar month.

Month Insider selling / shares Insider buying / shares
January 2014 46,000 0
December 2013 45,239 0
November 2013 41,618 0
October 2013 30,000 0
September 2013 48,700 0
August 2013 61,300 0
July 2013 155,000 0
June 2013 88,000 0
May 2013 150,640 0
April 2013 134,055 0
March 2013 153,225 0
February 2013 20,857 0
January 2013 41,097 0
Click to enlarge

There have been 1,015,731 shares sold, and there have been zero shares purchased by insiders since January 2013.

Financials

Proofpoint reported the third-quarter financial results on October 30 with the following highlights:

Revenue $34.5 million
GAAP net loss $7.2 million
Cash $71.6 million
Debt $2.8 million
Click to enlarge

Outlook

Proofpoint's guidance is as follows:

Q4/2013 FY2013
Revenue $35.0-$36.0 million $132.0-$133.0 million
Non-GAAP EPS loss $0.14-$0.11 $0.38-$0.36
Click to enlarge

Competition

Proofpoint's competitors include Check Point Software Technologies (NASDAQ:CHKP), and Symantec (NASDAQ:SYMC). Here is a table comparing these companies.

Company PFPT CHKP SYMC
Market Cap: 1.37B 12.57B 16.20B
Employees: 609 2,706 21,500
Qtrly Rev Growth (yoy): 0.27 0.04 -0.04
Revenue: 125.74M 1.38B 6.88B
Gross Margin: 0.70 0.88 0.84
EBITDA: -16.23M 771.88M 1.90B
Operating Margin: -0.19 0.55 0.19
Net Income: -21.14M 632.66M 814.00M
EPS: -0.62 3.13 1.15
P/E: N/A 20.58 20.23
PEG (5 yr expected): -3.39 1.96 1.47
P/S: 10.75 9.21 2.33
Click to enlarge
Click to enlarge

Proofpoint has the highest P/S ratio among these three companies.

Here is a table of these competitors' insider-trading activities during the last 12 months.

Company Insider buying / shares Insider selling / shares
CHKP N/A N/A
SYMC

100,000

831,310
Click to enlarge

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

Conclusion

There have been four different insiders selling Proofpoint, and there have not been any insiders buying Proofpoint during the last 30 days. Two of these four insiders decreased their holdings by more than 10%. Proofpoint has an insider ownership of 3.10%.

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

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.