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In this article, I will feature one bank 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%.

Discover Financial Services (NYSE:DFS) provides direct banking and payment services in the United States.

(click to enlarge)

Insider selling during the last 30 days

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

NameTitleTrade DateShares SoldRule 10b5-1Current OwnershipDecrease In Ownership
Roger HochschildCOOJan 29100,000No1,201,264 shares7.7%
Diane OffereinsEVPJan 3050,000No387,435 shares11.4%
Steven CunninghamSVPJan 2815,000No48,576 shares23.6%
James PanzarinoEVPJan 2840,000No113,716 shares26.0%
Carlos MinettiEVPJan 2882,231No343,749 shares19.3%
Glenn SchneiderSVPJan 2829,070No40,397 shares41.8%

There have been 316,301 shares sold by insiders during the last 30 days.

Insider selling by calendar month

Here is a table of Discover's insider-trading activity by calendar month.

MonthInsider selling / sharesInsider buying / shares
January 2014316,3010
December 201300
November 201325,4590
October 2013155,6100
September 201300
August 2013234,7990
July 201300
June 201300
May 201300
April 2013153,9300
March 201300
February 201300
January 201300

There have been 886,099 shares sold, and there have been zero shares purchased by insiders since January 2013. The month of January 2014 has seen the most insider selling.

Financials

Discover reported the full-year 2013 financial results on January 23 with the following highlights:

Net interest income$5.9 billion
Net income$2.4 billion
Book value$22.89 per share

Competition

Discover's competitors include JPMorgan (NYSE:JPM), Bank of America (NYSE:BAC), and Citigroup (NYSE:C). Here is a table comparing these companies.

CompanyDFSJPMBACC
Market Cap:25.48B224.88B178.95B145.11B
Employees:13,009251,196242,117251,000
Qtrly Rev Growth (yoy):0.050.000.280.04
Revenue:8.17B96.38B85.39B68.76B
Operating Margin:0.480.280.200.29
Net Income:2.41B16.59B10.08B13.18B
EPS:4.964.350.904.42
P/E:10.8212.8218.5810.80
PEG (5 yr expected):1.141.600.610.49
P/S:3.182.342.242.13

Discover has the 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
JPM738,336737,814
BAC40,000619,300
C58547,222

JPMorgan has also seen intensive insider selling during the last 30 days.

Conclusion

There have been six different insiders selling Discover, and there have not been any insiders buying Discover during the last 30 days. Five of these six insiders decreased their holdings by more than 10%. Discover has an insider ownership of 1.10%.

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

Source: Discover Financial: 6 Different Insiders Have Sold Shares This Year