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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%.

TW Telecom (TWTC) engages in the provision of managed network services in the United States.

(click to enlarge)

Insider selling during the last 30 days

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

NameTitleTrade DateShares SoldRule 10b5-1Current OwnershipDecrease In Ownership
Mark PetersCFOJan 27-2986,341Yes335,532 shares20.5%
John BlountCOOJan 27-29109,249Yes445,068 shares19.7%
Kevin MooneyDirectorJan 3016,000Yes62,163 shares20.5%
Gregory AttorriDirectorJan 27-316,750Yes46,030 shares12.8%

There have been 218,340 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 TW Telecom's insider-trading activity by calendar month.

MonthInsider selling / sharesInsider buying / shares
January 2014284,5050
December 201300
November 201325,0000
October 201347,0000
September 201319,5000
August 201325,0000
July 20132,0000
June 201300
May 2013644,6530
April 2013729,8470
March 201300
February 20131,422,3600
January 201331,7500

There have been 3,231,615 shares sold, and there have been zero shares purchased by insiders since January 2013.

Financials

TW Telecom reported the third-quarter financial results on November 6 with the following highlights:

Revenue$393.2 million
Net loss$9.4 million
Cash$569.5 million
Debt$1.8 billion

(Source: Earnings presentation)

Competition

TW Telecom's competitors include AT&T (T), Verizon Communications (VZ), and CenturyLink (CTL). Here is a table comparing these companies.

CompanyTWTCTVZCTL
Market Cap:4.15B169.01B133.33B16.77B
Employees:3,147243,360176,80046,700
Qtrly Rev Growth (yoy):0.070.020.03-0.01
Revenue:1.54B128.75B120.55B18.14B
Gross Margin:0.580.600.630.61
EBITDA:506.87M48.87B48.57B7.46B
Operating Margin:0.140.240.270.16
Net Income:37.56M18.25B11.50B-245.00M
EPS:0.253.394.00-0.40
P/E:114.869.5411.66N/A
PEG (5 yr expected):10.302.041.528.31
P/S:2.751.351.140.94

TW Telecom 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
T10,00031,091
VZ031,867
CTL1,50028,558

Only TW Telecom has seen intensive insider selling during the last 30 days.

Conclusion

There have been four different insiders selling TW Telecom, and there have not been any insiders buying TW Telecom during the last 30 days. All four of these insiders decreased their holdings by more than 10%. TW Telecom has an insider ownership of 3.01%.

Before going short TW Telecom, 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: TW Telecom: 4 Different Insiders Have Sold Shares During The Last 30 Days