Seeking Alpha
Long/short equity, insider ownership
Profile| Send Message|
( followers)  

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.

NameTitleTrade DateShares SoldRule 10b5-1Current OwnershipDecrease In Ownership
Scot RogersGeneral CounselFeb 3-101,459Yes1,498 shares49.3%
John McAdamCEOFeb 1016,000Yes88,675 shares15.3%
Karl TriebesEVPFeb 35,440Yes9,088 shares37.4%
Manuel RiveloEVPFeb 35,093Yes11,971 shares29.8%
Andrew ReinlandCFOFeb 32,539Yes41,639 shares5.7%
David FeringaEVPFeb 34,672Yes2,197 shares68.0%
Edward EamesEVPFeb 34,534Yes30,430 shares13.0%

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.

MonthInsider selling / sharesInsider buying / shares
February 201439,7370
January 201400
December 201317,5800
November 201313,2200
October 201300
September 201300
August 201380,8900
July 201300
June 201300
May 201318,1420
April 201300
March 201300
February 2013108,8760
January 201300

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

Outlook

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

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

Competition

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

CompanyFFIVCSCOCTXSJNPR
Market Cap:8.51B121.87B10.40B13.72B
Employees:3,35675,049N/AN/A
Qtrly Rev Growth (yoy):0.110.020.080.12
Revenue:1.52B48.82B2.92B4.67B
Gross Margin:0.830.610.860.63
EBITDA:469.27M14.06B648.22M794.90M
Operating Margin:0.280.240.130.13
Net Income:275.87M9.89B339.52M439.80M
EPS:3.491.841.800.86
P/E:32.1212.4030.9332.05
PEG (5 yr expected):1.261.381.741.37
P/S:5.472.503.542.96

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.

CompanyInsider buying / sharesInsider selling / shares
CSCO04,604,743
CTXS0460,536
JNPR01,214,461

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.

Source: F5 Networks: 7 Different Insiders Have Sold Shares This Month