Trex Company (NYSE:TREX) manufactures and distributes wood/plastic composite products, and related accessories primarily for the residential and commercial decking, and railing applications in the United States.
Insider selling during the last 30 days
Here is a table of Trex' insider activity during the last 30 days.
|Name||Title||Trade Date||Shares Sold||Rule 10b5-1||Current Ownership||Decrease In Ownership|
|Jay Gratz||Director||April 17||1,111||Yes||2,399 shares + 930 options||25.0%|
|Ronald Kaplan||CEO||April 7-9||9,263||Yes||85,557 shares + 20,150 options||8.1%|
|William Gupp||CAO||April 7-9||3,611||Yes||33,473 shares + 3,000 options||9.0%|
|Frank Merlotti||Director||April 8||1,592||Yes||2,399 shares + 4,470 options||18.8%|
|Patricia Robinson||Director||April 7||2,000||Yes||2,958 shares||40.3%|
|Timothy Reese||SVP||April 2||2,418||Yes||38,576 shares||5.9%|
There have been 19,995 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 Trex' insider activity by calendar month.
|Month||Insider selling / shares||Insider buying / shares|
There have been 239,619 shares sold, and there have been zero shares purchased by insiders since January 2013.
Trex reported the full-year 2013 financial results on February 24 with the following highlights:
|Net income||$34.6 million|
The six insiders sold their shares after these results.
For the first quarter of 2014, Trex expects net sales of approximately $115 million, an increase of approximately 7% over the prior-year period.
Trex' competitors include Universal Forest Products (NASDAQ:UFPI). Here is a table comparing these two companies.
|Qtrly Rev Growth (yoy):||0.38||-0.00|
|PEG (5 yr expected):||1.10||1.08|
Trex has a higher P/S ratio than Universal Forest Products. In Universal Forest Products, there have been 46,537 shares sold, and there have been zero shares purchased by insiders since January 2013. Only Trex has seen intensive insider selling during the last 30 days.
There have been six different insiders selling Trex, and there have not been any insiders buying Trex during the last 30 days. Three of these six insiders decreased their holdings by more than 10%. Trex has an insider ownership of 4.72%.
Trex has a $64 price target from the Point & Figure chart. I believe there is an opportunity for a short entry with the $64 price target. I would place a stop loss at $87, which is the all-time high. The three main reasons for the proposed short entry are a bearish Point & Figure chart, relatively high P/S ratio, and the intensive insider-selling activity.
Disclosure: I have no positions in any stocks mentioned, but may initiate a short position in TREX over 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.