In this article, I will feature one services 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%.
Netflix (NFLX) provides Internet television network service that enables subscribers to stream TV shows and movies directly on TVs, computers, and mobile devices in the United States and internationally.
Insider selling during the last 30 days
Here is a table of Netflix' insider-trading activity during the last 30 days by insider.
|Name||Title||Trade Date||Shares Sold||Rule 10b5-1||Current Ownership||Decrease In Ownership|
|Timothy Haley||Director||Jan 24||13,717||Yes||0 shares + 322 options||97.7%|
|Leslie Kilgore||Director||Jan 23||5,929||Yes||13,028 shares||31.3%|
|Neil Hunt||CPO||Jan 2||5,000||Yes||80,786 shares + 9,079 options||5.6%|
There have been 24,646 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 Netflix' insider-trading activity by calendar month.
|Month||Insider selling / shares||Insider buying / shares|
There have been 1,692,269 shares sold, and there have been zero shares purchased by insiders since January 2013.
Netflix reported the full-year 2013 financial results on January 22 with the following highlights:
|Net income||$112.4 million|
Netflix expects to end the first quarter with 48 million members.
(Source: Earnings letter)
|Qtrly Rev Growth (yoy):||0.24||0.24||0.00||0.12|
|PEG (5 yr expected):||4.43||14.31||1.35||1.61|
Netflix 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.
|Company||Insider buying / shares||Insider selling / shares|
Only Netflix has seen intensive insider selling during the last 30 days.
There have been three different insiders selling Netflix, and there have not been any insiders buying Netflix during the last 30 days. Two of these three insiders decreased their holdings by more than 10%.
There are eight analyst buy ratings, 25 neutral ratings, and six sell ratings with an average price target of $369.46. Before going short Netflix, 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.