F5 Networks: 7 Different Insiders Have Sold Shares This Month

| About: F5 Networks, (FFIV)

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%.

F5 Networks (NASDAQ:FFIV) develops, markets, and sells application delivery networking products that optimize the security, performance, and availability of network applications, servers, and storage systems.

Click to enlarge

Insider selling during the last 30 days

Here is a table of F5 Networks' insider-trading activity during the last 30 days by insider.

Name Title Trade Date Shares Sold Rule 10b5-1 Current Ownership Decrease In Ownership
Scot Rogers General Counsel Feb 3-10 1,459 Yes 1,498 shares 49.3%
John McAdam CEO Feb 10 16,000 Yes 88,675 shares 15.3%
Karl Triebes EVP Feb 3 5,440 Yes 9,088 shares 37.4%
Manuel Rivelo EVP Feb 3 5,093 Yes 11,971 shares 29.8%
Andrew Reinland CFO Feb 3 2,539 Yes 41,639 shares 5.7%
David Feringa EVP Feb 3 4,672 Yes 2,197 shares 68.0%
Edward Eames EVP Feb 3 4,534 Yes 30,430 shares 13.0%
Click to enlarge

There have been 39,737 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 F5 Networks' insider-trading activity by calendar month.

Month Insider selling / shares Insider buying / shares
February 2014 39,737 0
January 2014 0 0
December 2013 17,580 0
November 2013 13,220 0
October 2013 0 0
September 2013 0 0
August 2013 80,890 0
July 2013 0 0
June 2013 0 0
May 2013 18,142 0
April 2013 0 0
March 2013 0 0
February 2013 108,876 0
January 2013 0 0
Click to enlarge

There have been 278,445 shares sold, and there have been zero shares purchased by insiders since January 2013.

Financials

F5 Networks reported the fiscal 2014 first-quarter, which ended December 31, financial results on January 22 with the following highlights:

Revenue $406.5 million
GAAP net income $68.0 million
Cash $578.2 million
Click to enlarge

Outlook

F5 Networks' fiscal 2014 second-quarter guidance is as follows:

Revenue $408-$418 million
GAAP net income $1.23-$1.26 per share
Click to enlarge

Competition

F5 Networks' competitors include Cisco (NASDAQ:CSCO), Citrix Systems (NASDAQ:CTXS), and Juniper Networks (NYSE:JNPR). Here is a table comparing these companies.

Company FFIV CSCO CTXS JNPR
Market Cap: 8.51B 121.87B 10.40B 13.72B
Employees: 3,356 75,049 N/A N/A
Qtrly Rev Growth (yoy): 0.11 0.02 0.08 0.12
Revenue: 1.52B 48.82B 2.92B 4.67B
Gross Margin: 0.83 0.61 0.86 0.63
EBITDA: 469.27M 14.06B 648.22M 794.90M
Operating Margin: 0.28 0.24 0.13 0.13
Net Income: 275.87M 9.89B 339.52M 439.80M
EPS: 3.49 1.84 1.80 0.86
P/E: 32.12 12.40 30.93 32.05
PEG (5 yr expected): 1.26 1.38 1.74 1.37
P/S: 5.47 2.50 3.54 2.96
Click to enlarge

F5 Networks 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.

Company Insider buying / shares Insider selling / shares
CSCO 0 4,604,743
CTXS 0 460,536
JNPR 0 1,214,461
Click to enlarge

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

Conclusion

There have been seven different insiders selling F5 Networks, and there have not been any insiders buying F5 Networks during the last 30 days. Six of these seven insiders decreased their holdings by more than 10%. F5 Networks has an insider ownership of 0.30%.

Before going short F5 Networks, 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.

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.