Heavy Insider Selling Detected At These Three Companies

Numerous research papers have provided evidence that corporate insiders’ purchases deliver superior returns over a long-term investment spectrum. After the enacment of the Sarbones-Oxley Act more than ten years ago, corporate insiders are required to report changes in ownership to the U.S. Securities and Exchange Commission within two business days, which enables non-insiders to imitate their trades in a timely manner and generate superior returns along with them. While insider buying bears more relevant information than insider selling, which seems to be quite logical given that insiders may sell stock for a wide array of reasons unrelated to their companies’ prospects. Even so, this type of activity should not be overlooked by any means. Instead, insider selling activity should be more closely examined so as to diminish the likelihood of false interpretations. It is true that insider sales may fail to provide accurate signals to predict future stock price depreciation, but correct interpretations of these trades may save an average investor hundreds or thousands dollars. With this in mind, let’s now take a thorough look at the insider selling activity registered by three U.S-listed companies and attempt to find out the reasoning behind their insiders’ moves.

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Prior to discussing the insider trading activity, let’s make you familiar with what Insider Monkey does besides providing high-quality articles. We track hedge funds and prominent investors because our research has shown that historically their stock picks delivered superior risk-adjusted returns. This is especially true in the small-cap space. The 50 most popular large-cap stocks among hedge funds had a monthly alpha of about six basis points per month between 1999 and 2012; however the 15 most popular small-cap stocks delivered a monthly alpha of 80 basis points during the same period. This means investors would have generated ten percentage points of alpha per year simply by imitating hedge funds’ top 15 small-cap ideas. We have been tracking the performance of these stocks since the end of August 2012 in real time and these stocks have beaten the market by 53 percentage points (102% return vs. S&P 500’s 48.7% gain) over the last three-plus years (see more details here).

Getting back to the insider trading activity, Align Technology Inc. (NASDAQ:ALGN) is one of the companies that registered heavy insider selling this week. Chief Financial Officer David L. White sold 8,426 shares on Tuesday at a weighted average sale price of $66.85 and offered 3,000 shares as a bona-fide gift on Wednesday. Following these transactions, the CFO currently holds an ownership stake of 5,636 shares. Jennifer M. Erfurth, Vice President of Global Human Resources at Align Technology, unloaded 6,198 shares on Wednesday at a weighted average price of $66.04, leaving her with just 686 shares. It appears that these insiders are playing the buy-low, sell-high game, as the stock is up by more than 17% year-to-date, thanks to its stronger-than-expected third-quarter earnings report. The leader in modern clear aligner orthodontics reported earnings per share of $0.34 on revenue of $207.64 million, compared to EPS of $0.47 on revenue of $189.88 million posted a year ago. James Crichton’s Hitchwood Capital Management acquired a 1.2 million-share stake in Align Technology Inc. (NASDAQ:ALGN) during the second quarter, making it one of the largest shareholders of the company within our database.

On the next page of the article, we disclose the insider selling activity that has occurred at Syntel Inc. (NASDAQ:SYNT) and Knoll Inc. (NYSE:KNL).

Let’s now move on to Syntel Inc. (NASDAQ:SYNT), which has had a high volume of insider selling so far this week. Prashant Ranade, Executive Vice Chairman of Syntel’s Board of Directors, offloaded 24,000 shares this week at prices between $46.95 and $47.20 per share, after receiving 6,000 shares according to a stock options and incentive plan. After these transactions, the executive currently holds 105,000 shares. Chief Administrative Officer Daniel M. Moore sold 4,600 shares at a price of $47.36, after being granted 3,000 shares. As a result, the CAO owns 9,652 shares. Moreover, Director George R. Mrkonic sold 2,956 shares on Monday at $46.95 apiece, reducing his stake to 6,468 shares. Finally, Chief Financial and Information Security Officer Arvind S. Godbole unloaded 4,174 shares on Tuesday at a sale price of $46.44, trimming his holding to 8,978 shares. Syntel Inc. (NASDAQ:SYNT)’s shares are up by 5% year-to-date, and it seems that these insiders waited for the release of the company’s third quarter earnings report to cash out some of their holdings. Jim Simons’ Renaissance Technologies owned nearly 770,000 shares of Syntel Inc. on June 30.

Last but not least, we will investigate the insider selling activity at Knoll Inc. (NYSE:KNL). Benjamin A. Pardo, Executive Vice President – Design Director, reported selling 6,661 shares on Wednesday at prices ranging from $23.41-to-$23.44, reducing his stake to 37,500 shares. The design firm has seen its shares advance by slightly more than 8% year-to-date, but they have embarked on a steady downtrend since late June. The company’s freshly-published earnings report could not put a halt to this long-lasting downward trend, as the company reported net sales of $263.6 million, which represented a 1.8% year-over-year decrease. Nevertheless, Knoll Inc.’s net earnings increased by 14.7% year-over-year to $17.9 million. Meanwhile, the stock is currently trading at a trailing P/E ratio of 17.23, compared to a P/E ratio of 22.07 for the S&P 500, which could somewhat suggest that the stock is slightly undervalued at the moment (or that the broader market is greatly overvalued). Clifford Fox’s Columbus Circle Investors added a 434,000-share position in Knoll Inc. (NYSE:KNL) to its portfolio during the June quarter.

Disclosure: None