Do These Selling Insiders Know Something You Don’t?

The U.S stock markets have registered their worst ever start to a year, so one may wonder why corporate insiders are not taking part in the major equities sell-off. In fact, data reveals that last week’s dollar volume of insider selling has been the lowest in the past four years or so. What can we make of this phenomenon? Most likely, corporate insiders have not scared away by the deepening stock market correction and have confidence in their shares to rebound long-term. Nonetheless, one should not forget the extremely high insider selling activity registered during the last several months of 2015, which could have served as a warning for investors. Although insider selling is relatively hard to interpret, this type of activity should not be overlooked, as it may reveal a broader change in sentiment towards equities. While exploring the insider trading database available on our website, the Insider Monkey team has identified three companies that reported noteworthy insider sales in the past week. Hence, this article will focus on the insider sales registered at those three companies and the recent performance of the companies in question.

Prior to discussing the insider trading activity, let’s make you familiar with what Insider Monkey does. At Insider Monkey, we track hedge funds’ moves in order to identify actionable patterns and profit from them. But why do we track hedge fund activity? From one point of view we can argue that hedge funds are consistently underperforming when it comes to net returns over the last three years, when compared to the S&P 500. But that doesn’t mean that we should completely neglect their activity. There are various reasons behind the low hedge fund returns. Our research indicated that hedge funds’ long positions actually beat the market. In our back-tests covering the 1999-2012 period, hedge funds’ top small-cap stocks beat the S&P 500 index by double digits annually (read the details here).

Carnival Corp (NYSE:CCL) had three different executives sell big last week, which might raise red flags for some investors. To begin with, Stein Kruse, Chief Executive Officer of the company’s Holland America Group since December 2013, sold 26,560 shares on Friday at a weighted average price of $49.92, cutting his overall holding to 73,183 shares. Secretary and General Counsel Arnaldo Perez unloaded 12,749 units of common stock on the same day at a weighted average sale price of $49.92 and currently holds 57,767 shares. Last but not least, Chief Financial Officer David Bernstein discarded 16,467 shares on Friday for $49.92 each. After the recent sizable sell-off, the CFO currently owns 50,951 shares.

The shares of the cruise company are 7% in the green over the past year despite experiencing a sharp drop earlier this year. Carnival Corp (NYSE:CCL)’s cruise passenger ticket revenue for the nine months that ended August 31, which accounted for 74% of the company’s total revenue, decreased by 2.8% year-over-year to $8.9 billion. The foreign exchange translations greatly impacted Carnival’s top-line results last year, having reduced cruise passenger ticket revenue by $587 million. Leaving the currency impact aside, the company’s top-line results were positively influenced by an increase in cruise ticket pricing, an increase in ALBDs (a measure of passenger capacity), and an increase in occupancy. Analysts anticipate the company to post earnings per share of $3.91 for fiscal year 2016, which assigns the stock a forward price-to-earnings ratio of only 12.55 (the ratio for the S&P 500 companies totals 15.65). The hedge fund sentiment towards the stock was positive in the third quarter, as the number of smart money investors in our system with stakes in the operator of luxury cruise ships climbed to 53 from 49 quarter-over-quarter. Kerr Neilson’s Platinum Asset Management cut its stake in Carnival Corp (NYSE:CCL) by 22% during the third quarter to 7.42 million shares.

Let’s move on to the next two pages of this daily insider trading article, where the insider sales registered at FactSet Research Systems Inc. (NYSE:FDS) and Sportsman’s Warehouse Holdings Inc. (NASDAQ:SPWH) are discussed.

FactSet Research Systems Inc. (NYSE:FDS) has witnessed high insider trading activity on the sell side in 2016, but most insider sales were made in connection with the exercise of non-qualified stock options. According to a recent Form 4 filing, Director Joseph E. Laird sold 1,000 shares on Thursday at $147.50 apiece and currently owns 7,000 shares. It is not the size of the sale that should catch investors’ attention, but rather the timing of the sale that should be examined. Even though most insiders at FactSet sold shares in relation to the exercise of stock options, the timing of their sales points to not-so-bright prospects for the stock. By simply looking at the chart showing FactSet’s stock performance and considering the recent insider selling, most individuals would conclude that FactSet’s management anticipates worsening fundamentals.

The provider of integrated financial information and analytical applications reported revenue of $270.5 million for the first quarter of fiscal year 2016 that ended November 30, up from $242.7 million reported a year earlier. The increase was mainly achieved due to strong organic annual subscription value growth. The company’s organic ASV growth rate reached 9.4% for the first quarter of fiscal year 2016, compared to 8.5% registered a year earlier. FactSet’s expectations for the second quarter of fiscal year 2016 suggest that the company has more room to run in the upcoming quarters. The company anticipates second-quarter revenue to be in the range of $280 million-to-$286 million. Jim Simons’ Renaissance Technologies upped its position in FactSet Research Systems Inc. (NYSE:FDS) by 25% during the third quarter to 278,800 shares.

There has also been a high volume of insider selling registered at Sportsman’s Warehouse Holdings Inc. (NASDAQ:SPWH) this year, but a large portion of those sales were conducted under trading plans. Chief Financial Officer and Secretary Kevan P. Talbot reported selling 9,869 shares on Thursday and 3,731 shares on Friday, at prices that ranged from $12.75 to $13.00 per share, all of which were held by Pit Stop Properties LLC. The CFO, through his revocable trust, and his wife, through her revocable trust, are the sole general members of Pit Stop Properties LLC. After the recent sales, Pit Stop Properties holds a stake of 46,400 shares. The CFO also holds an indirect ownership stake of 374,307 shares, which are held through the Kevan P. Talbot Revocable Trust.

The operator of retail sporting goods stores has seen its shares advance by 100% over the last year, so it should not be surprising that insiders are cashing out. The recent insider selling does not necessarily mean that the stock will embark on a steady downtrend in the future, but this is how contrarian investors think: sell when everyone wants the stock, and buy when no one wants the stock. Sportsman’s Warehouse trades at a forward P/E ratio of 16.98, which is slightly above the average for the S&P 500 companies. Considering that the company’s same-store sales for the first nine months of fiscal year 2015 were flat relative to the same period of the prior year, one could argue that there is not much upside for the company. Ken Griffin’s Citadel Advisors LLC acquired a 377,852-share stake in Sportsman’s Warehouse Holdings Inc. (NASDAQ:SPWH) during the September quarter.

Disclosure: None