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:
- 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%.
Cepheid (NASDAQ:CPHD), a molecular diagnostics company, develops, manufactures, and markets integrated systems for testing in the clinical market; and for application in legacy non-clinical market.
Insider selling during the last 30 days
Here is a table of Cepheid's insider-trading activity during the last 30 days by insider.
|Name||Title||Trade Date||Shares Sold||Rule 10b5-1||Current Ownership||Decrease In Ownership|
|Joseph Smith||EVP||Jan 16-31||65,000||Yes||11,181 shares||85.3%|
|Andrew Miller||CFO||Jan 31||63,375||Yes||4,584 shares + 62,625 options||48.5%|
|John Bishop||CEO||Jan 16-31||250,000||Yes||
|Kerry Flom||EVP||Jan 16-27||15,889||Yes||20,000 shares + 2,592 options||41.3%|
There have been 394,264 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 Cepheid's insider-trading activity by calendar month.
|Month||Insider selling / shares||Insider buying / shares|
There have been 835,814 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.
Cepheid reported the full-year 2013 financial results on January 30 with the following highlights:
|Net loss||$18.0 million|
Cepheid's 2014 guidance is as follows:
|Net loss||-$0.26 to -$0.21 per share|
|Qtrly Rev Growth (yoy):||0.23||0.05||0.03|
|PEG (5 yr expected):||-20.78||1.91||2.30|
Cepheid has the highest P/S ratio among these three companies.
Here is a table of these competitors' insider-trading activities during the last 12 months.
|Company||Insider buying / shares||Insider selling / shares|
Only Cepheid has seen intensive insider selling during the last 30 days.
There have been four different insiders selling Cepheid, and there have not been any insiders buying Cepheid during the last 30 days. All four of these insiders decreased their holdings by more than 10%. Cepheid has an insider ownership of 0.80%.
Before going short Cepheid, I would like to get a bearish confirmation from the Point and Figure chart. The three main reasons for the proposed short entry are relatively high P/S ratio, negative earnings, and the intensive insider-selling activity.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.