Does Insider Selling Metric Suggest ‘Danger Ahead’ For These Three Companies?

Corporate insiders can buy or sell their companies’ shares via two simple means. They can either buy or sell shares through open market transactions, or make trades through a 10b5-1 trading plan. The Insider Monkey team keeps an eye on the spontaneous insider trades only and avoids analyzing insider trades conducted under trading plans. The reason why we consider the trades conducted under trading plans uninformative is because they are structured well in advance of any specific trade and therefore do not reflect recent developments at the companies in question. The spur-of-the-moment insider sales on the other hand can provide more insight about different companies’ future prospects. With that in mind, let’s proceed with a discussion about the spontaneous insider sales registered at three U.S.-listed companies recently and see what insight they can provide.

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Electronic Arts Inc. (NASDAQ:EA) is one of the three companies that has registered high insider selling activity this week. The video game giant has seen three different insiders sell stock thus far this trading week, though two of them conducted their sales under trading plans. In the other case, Director Vivek Paul sold 25,000 shares on Monday at prices in the range of $71.89-to-$73.27, after exercising 11,872 non-qualified stock options on the same day. As a result, the net sale adds up to 13,128 shares. Meanwhile, the Director currently holds a stake of 1,615 shares. Just recently, Electronic Arts Inc. (NASDAQ:EA) posted better-than-expected results for its fiscal year 2016 second quarter, in addition to raising its full-year sales outlook for Star Wars Battlefront. At the same time, the shares of the video game publisher have advanced by 58% since the beginning of the year. However, they seem to be trading at a rich trailing P/E ratio of 25.10, which is greater than the median of 22.65 for the companies included in the S&P 500 index. Cliff Asness’ AQR Capital Management owned a 4.61 million-share stake in Electronic Arts Inc. (NASDAQ:EA) at the end of the June quarter.

The next page of the article discusses the insider selling activity at CoreSite Realty Corp and ENSCO PLC.

Let’s now refocus our attention on carrier-neutral provider of data centers, colocation, and peering CoreSite Realty Corp (NYSE:COR). President and Chief Executive Officer Thomas M. Ray unloaded 11,819 shares on Monday at a weighted average price of $56.77, trimming his stake to 383,989 shares. The CEO also holds an indirect ownership stake of 2,000 shares via a family trust fund. The shares of the company have been riding an upward trend since the beginning of the year and are nearly 46% in the green year-to-date. A little more than a week ago, RBC Capital Markets raised its price target on the stock to $64 from $57, and reiterated its ‘Outperform’ rating. With that being said, the aforementioned insider sale might not raise any red flags, considering the company’s strong third quarter financial results and its strong stock performance in particular. Israel Englander’s Millennium Management was the top shareholder of CoreSite Realty Corp (NYSE:COR) within our database at the end of the second quarter, holding 1.06 million shares.

Lastly, we will take a look into the insider selling activity at offshore contract drilling company ENSCO PLC (NYSE:ESV). Executive Vice President and Chief Financial Officer Jay W. Swent III offloaded 59,189 shares on Monday at a weighted sale price of $17.81, remaining with 15,932 shares. The company’s management has been tackling the challenging business environment quite well over the past few months, which iwa reflected in its third quarter earnings report. ENSCO PLC (NYSE:ESV) reported record operational utilization of 99.8% for jackup rigs and 95.4% for floaters, which points to the success of the company’s management in keeping its fleet working. However, the company’s overall utilization declined to 62% from 89% year-over-year if considering the rigs that are not in operation, which emphasizes the extent to which this industry has weakened thus far. Even more to that, some of ENSCO’s customers announced more cuts to their capital expenditure budgets, which will eventually put even more weight on the company’s activities and operations. Meanwhile, the stock has declined by 38% since the beginning of the year and the CFO might fear worsening conditions in the offshore drilling industry. Joe Huber’s Huber Capital Management held a 4.43 million-share position in ENSCO PLC (NYSE:ESV) on June 30.

Disclosure: None