In this article, I will feature one financial sector 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%.
Financial Engines (FNGN) provides independent, technology-enabled portfolio management services, investment advice, and retirement income services to participants in employer-sponsored defined contribution plans.
Insider selling during the last 30 days
Here is a table of Financial Engines' insider-trading activity during the last 30 days by insider.
|Name||Title||Trade Date||Shares Sold||Rule 10b5-1||Current Ownership||Decrease In Ownership|
|Raymond Sims||CFO||Jan 16||8,127||Yes||40,299 shares||16.8%|
|Kelly O'Donnell||EVP||Jan 15||4,337||Yes||11,130 shares + 13,013 options||15.2%|
|Jeffrey Maggioncalda||CEO||Jan 14||15,000||Yes||250,677 shares||5.6%|
|Anne Tuttle||EVP||Jan 6-9||5,886||Yes||6,921 shares + 19,024 options||18.5%|
|Mary Lee Sharp||EVP||Jan 8-21||1,994||Yes||46 shares + 16,086 options||11.0%|
|Garry Hallee||EVP||Jan 7||10,000||Yes||125,092 shares + 37,485 options||5.8%|
|Lawrence Raffone||President||Jan 6||16,202||Yes||3,710 shares + 64,667 options||19.2%|
There have been 61,546 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 Financial Engines' insider-trading activity by calendar month.
|Month||Insider selling / shares||Insider buying / shares|
There have been 1,663,540 shares sold, and there have been zero shares purchased by insiders since January 2013.
Financial Engines reported the third-quarter financial results on November 5 with the following highlights:
|Net income||$8.1 million|
Financial Engines' guidance is as follows:
|Revenue||$238-$240 million||$274-$279 million|
|Non-GAAP adjusted EBITDA||~$80 million||$92-$94 million|
Financial Engines 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|
Only Financial Engines has seen intensive insider selling during the last 30 days.
There have been seven different insiders selling Financial Engines, and there have not been any insiders buying Financial Engines during the last 30 days. Five of these seven insiders decreased their holdings by more than 10%. Financial Engines has an insider ownership of 0.50%.
There are four analyst buy ratings, one neutral rating, and zero sell ratings with an average price target of $66.25. Before going short Financial Engines, I would like to get a bearish confirmation from the Point and Figure chart. The three main reasons for the proposed short entry are bearish analyst price targets, relatively high P/S ratio, and the intensive insider-selling activity.