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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%.

Glu Mobile (NASDAQ:GLUU) develops and publishes a portfolio of action/adventure and casual games for the users of smartphones and tablet devices.

(click to enlarge)

Insider selling during the last 30 days

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

NameTitleTrade DateShares SoldRule 10b5-1Current OwnershipDecrease In Ownership
Hany NadaDirectorJan 9-Feb 71,388,627Yes3,415,478 shares28.9%
Niccolo de MasiCEOFeb 6150,000Yes44,909 shares + 600,000 options18.9%
Matthew RicchettiPresident of StudiosJan 236,250Yes0 shares + 206,250 options2.9%
Eric LudwigCFOJan 1580,000Yes82,702 shares + 120,000 options28.3%

There have been 1,624,877 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 Glu Mobile's insider-trading activity by calendar month.

MonthInsider selling / sharesInsider buying / shares
February 2014550,0000
January 20141,840,2110
December 2013541,2790
November 201300
October 2013225,0000
September 201300
August 201300
July 201300
June 201300
May 201300
April 201300
March 2013733,5400
February 2013794,6000
January 201300

There have been 4,684,630 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

Glu Mobile reported the full-year 2013 financial results on February 5 with the following highlights:

GAAP revenue$105.6 million
GAAP net loss$20.1 million
Cash$28.5 million

Outlook

Glu Mobile's guidance is as follows:

Q1/2014FY2014
Non-GAAP revenue$38.0-$40.0 million$142.0-$150.0 million
Non-GAAP net income$0.7-$1.6 million$0.1-$2.0 million

(click to enlarge)

(Source: Earnings presentation)

Glu Mobile expects to have a cash balance at December 31, 2014 of $35.0 million with no debt.

Competition

Glu Mobile's competitors include DeNA Co (OTC:DNACF), Electronic Arts (NASDAQ:EA), and Zynga (NASDAQ:ZNGA). Here is a table comparing these companies.

CompanyGLUUDNACFEAZNGA
Market Cap:389.00M2.40B8.40B3.72B
Employees:5212,1089,300N/A
Qtrly Rev Growth (yoy):-0.17-0.05-0.12-0.43
Revenue:97.08M2.60B3.66B873.27M
Gross Margin:0.690.700.620.72
EBITDA:-16.83M982.85M193.00M73.63M
Operating Margin:-0.250.34-0.00-0.06
Net Income:-23.45M537.98M-36.00M-36.98M
EPS:-0.344.04-0.12-0.05
P/E:N/A4.57N/AN/A
PEG (5 yr expected):54.89N/A1.1915.13
P/S:3.970.922.234.20

Glu Mobile has the second-highest P/S ratio among these four companies.

Here is a table of these competitors' insider-trading activities during the last 30 days.

CompanyInsider buying / sharesInsider selling / shares
DNACFN/AN/A
EA01,568,159
ZNGA

0

14,037

Only Glu Mobile has seen intensive insider selling during the last 30 days.

Conclusion

There have been four different insiders selling Glu Mobile, and there have not been any insiders buying Glu Mobile during the last 30 days. Three of these four insiders decreased their holdings by more than 10%. Glu Mobile has an insider ownership of 25.75%.

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

Source: Glu Mobile: 4 Different Insiders Have Sold Shares This Year