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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%.

Advanced Energy Industries (AEIS) designs, manufactures, sells, and supports power conversion products that transform power into various usable forms.

(click to enlarge)

Insider selling during the last 30 days

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

NameTitleTrade DateShares SoldRule 10b5-1Current OwnershipDecrease In Ownership
Danny HerronCFOJan 15-1635,810Yes25,849 shares + 13,405 options47.7%
Edward GradyDirectorJan 168,000Yes12,500 shares39.0%
Frederick BallDirectorJan 151,500Yes

46,500 shares

3.1%
Thomas RohrsDirectorJan 13-1516,000Yes47,000 shares25.4%
Terry HudgensDirectorJan 27,500Yes29,000 shares20.5%

There have been 68,810 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 Advanced Energy's insider-trading activity by calendar month.

MonthInsider selling / sharesInsider buying / shares
January 201468,8100
December 20139,0000
November 2013140,6300
October 201328,8200
September 201391,6040
August 201386,5970
July 201340,6000
June 20132,5000
May 201300
April 201300
March 201300
February 2013161,5270
January 201300

There have been 630,088 shares sold, and there have been zero shares purchased by insiders since January 2013.

Financials

Advanced Energy reported the third-quarter financial results on November 4 with the following highlights:

Revenue$142.9 million
Net income$0.7 million
Cash$104.7 million
Debt$11.4 million

Outlook

Advanced Energy's fourth-quarter guidance is as follows:

Revenue$145-$155 million
EPS$0.47-$0.52
Non-GAAP EPS$0.59-$0.63

Competition

Advanced Energy's competitors include BASF (OTCQX:BASFY), MKS Instruments (MKSI), and SMA Solar Technology AG (OTC:SMTGF). Here is a table comparing these companies.

CompanyAEISBASFYMKSISMTGFIndustry Average (Diversified Electronics)
Market Cap:1.04B98.48B1.59B1.37B157.00M
Employees:1,354112,6172,305N/A800.00
Qtrly Rev Growth (yoy):0.220.020.18-0.320.06
Revenue:507.39M95.56B598.82M1.26B221.91M
Gross Margin:0.370.250.41N/A0.26
EBITDA:65.60M12.75B68.37M37.16M13.80M
Operating Margin:0.090.090.09-0.030.04
Net Income:2.61M6.06B19.65M-32.95MN/A
EPS:0.066.600.37-0.950.06
P/E:474.9116.2580.97N/A16.38
PEG (5 yr expected):1.798.541.23N/A1.00
P/S:2.141.032.691.08

0.73

Advanced Energy has the second-highest P/S ratio among these four companies.

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

CompanyInsider buying / sharesInsider selling / shares
BASFYN/AN/A
MKSI

2,720

92,851
SMTGFN/AN/A

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

Conclusion

There have been five different insiders selling Advanced Energy, and there have not been any insiders buying Advanced Energy during the last 30 days. Four of these five insiders decreased their holdings by more than 10%. Advanced Energy has an insider ownership of 0.70%.

There are three analyst buy ratings, three neutral ratings, and two sell ratings with an average price target of $26.00. Before going short Advanced Energy, I would like to get a bearish confirmation from the Point and Figure chart. The two main reasons for the proposed short entry are bearish analyst price targets, and the intensive insider-selling activity.

Source: Advanced Energy Industries: 5 Different Insiders Have Sold Shares This Year