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One important barometer in a company’s valuation is the magnitude and direction of transaction activity of its officers. After all, they are in the best position to assess its current sales momentum, with access to data before it hits the public domain. Although there is an underlying assumption that these officers are a good judge of the company’s valuation (which may not always hold true), aggressive buying or selling of a company’s share by ‘insiders’ should not be ignored.

Although I have been bewildered by CRM’s valuation when it was 50% lower, I am now very reassured that my cynicism of its valuation is shared.

Insiders are abandoning ship like the Titanic.

Taking the data from Yahoo’s finance site, the overall figure of sales in the last 6 months says sell activity amounted to about 10% of current holdings: not too alarming.

However this is heavily skewed by one holder, the CEO, Benioff, who founded the company and still holds 12.4 million shares. Yes he has been selling 10,000 shares a day, each and every day for the recent past, but this is dwarfed by his massive holding. Result: he disposed of 7.5% of his holding (proceeds about $65m) in the last 6 months.

The startling point is this. It jumps out (like a hole in the head) when you examine the residual. In the last 6 months, the other officers & directors have dumped 32.5% of their entire holdings. See table below, data from Yahoo finance.

And I don’t blame them - the share valuation borders on the ludicrous.

Sales for last six months 1,383,550
Sales for Benioff 940000
Sales ex Benioff 443,550
Holdings at 3/10 total 13,796,193
Benioff Holdings 12,431,006
Holdings ex Benioff 1,365,187
Totals sales last 6 m as %age of current holdings 10.0%
Benioff sales last 6 m as %age of current holdings 7.56%
Other Officers sales as %age their of current holdings 32.5%

So the conclusion: The other officers, apart from the CEO Benioff, have sold almost one third of their entire holdings. Some have liquidated their entire positions. Ignore such a stampede at your peril.

Disclosure: You guessed right, short CRM