When insiders sell together, the sale indicates either a decrease in revenue or another matter, which will most likely drive prices down. The trend I found with Zygna (ZNGA) follows the "rules of the twos." After two insiders sell a large amount of shares, the stock price falls dramatically within the next three weeks as evinced below. The last set of sales was made at a time when selling seemed futile; as the stock price was at a 52 week low, which gave the stock both a low risk and a high potential for upside. But again, who am I to question the insiders - after all they're the ones inside.
After I saw this on Friday I initiated a short sell on Zygna , which I intend to hold until a target price of about $4.50. I have never seen a chart more telling of future stock prices. Peter Lynch points out in his book, One Up On Wall Street, that an insider will sell for various reasons, which is usually not very informative unless they are dumping shares or are selling along with another insider. Insiders, especially executives and directors of companies, know their company very well and therefore tracking their trading activities is a great indicator for the direction of the stock price.
Purchases
Sales
Options Exercised
Options Awarded
Stock Gift
The Trading took place as follows:
04/01/2012 | Reginald D. Davis | 634 | Disposition at $12.82 per share. | 8,127 |
04/03/2012 | Mark Vranesh, CPA | 366,216 | Disposition at $11.64 per share. | 4,262,754 |
04/03/2012 | Cadir B. Lee | 1,171,664 | Disposition at $11.64 per share. | 13,638,168 |
04/03/2012 | Mark J. Pincus, MBA | 16,500,000 | Disposition at $11.64 per share. | 192,060,000 |
04/03/2012 | Reid G. Hoffman | 687,626 | Disposition at $11.64 per share. | 8,003,966 |
04/03/2012 | Owen van Natta | 505,267 | Disposition at $11.64 per share. | 5,881,307 |
04/15/2012 | Reginald D. Davis | 14,578 | Disposition at $11.46 per share. | 167,063 |
04/15/2012 | Mark Vranesh, CPA | 4,714 | Disposition at $11.53 per share. | 54,352 |
05/01/2012 | David Y. Ko | 56,578 | Disposition at $8.6 per share. | 486,570 |
05/02/2012 | David M. Wehner | 58,889 | Disposition at $8.79 per share. | 517,634 |
05/20/2012 | David Y. Ko | 18,523 | Disposition at $7.12 per share. | 131,883 |
06/09/2012 | Cadir B. Lee | 13 | Disposition at $5.75 per share. | 74 |
06/18/2012 | 69,849 | Disposition at $5.87 per share. | 410,013 |
Goldman Sachs (GS) and Morgan Stanley (MS), the bankers of Zynga's IPO, agreed to modify the restrictions prohibiting insiders from dumping their shares. They were successful, and on April 3rd almost 20M shares were dumped at $11.64 AMC, much lower than the market's price of $12.20. The offering included more than 6 million shares bought by the company's IPO underwriters and generated just below $600M for the sellers, while providing nothing to Zynga or its common shareholders. As the company said in its April 3rd statement, "this was an orderly distribution of shares." I guess they consider a 30% drop in the stock price orderly.
MarketWatch put together a transaction summary of the total insider purchases and sales reported to the SEC:
Time Frame | Transactions | Shares |
Last 3 months | 16 Purchases 16 Sales | 19,970,852 19,514,792 |
Last 6 months | 24 Purchases 24 Sales | 20,772,840 19,931,294 |
Last 12 months | 30 Purchases 29 Sales | 42,692,072 20,850,526 |
The increase of sales by insiders in the past three months indicates a strong feeling of the insiders to get out of their positions in the company. The ratio of sales to purchases has been, respectively 1:2, which has dramatically changed in the past three months to 1:1.
Now that the stock has bounced from the all time low of $4.78 to $6.00, it has provided a great opportunity to short sell, or to purchase put options on Zygna's stock. I suggest following the leaders in their transactions, as they have proven to predict future stock shifts.
