Insider Selling Metric Highlights 3 Stocks Approaching Fair Valuations

The aggregate volume of insider selling increased considerably in February relative to the volume registered in January, which witnessed one of the lowest levels of insider selling in the past several months. As a general rule, investors tend to interpret insider selling as a negative sign, as changes in broad insider selling behavior reveal major shifts in insider sentiment. I tend to look at insider selling as a sign of fair valuations, which simply means that directors and executives are inclined to trim their holdings when they believe their companies reach or approach a fair valuation. This mostly relates to the type of insider selling that does not involve freshly-exercised stock options or pre-arranged trading plans. In fact, research suggests that companies with heavy insider selling activity tend to underperform companies witnessing insider buying, so it does pay off to examine insider trading behavior. The Insider Monkey team looked through dozens of Form 4 filings submitted with the SEC over the past several days and pinned down three companies with noteworthy insider sales.

Through extensive research, we have determined that the due diligence that the investors in our database employ, as well as their long-term focus makes them perfect targets to emulate. However, the results of our analysis have also shown that the small-cap picks of these funds can generate much better returns, with the 15 most popular small-cap stocks beating the market by an average of 95 basis points per month (read more details here).

Stamps.com Inc. (NASDAQ:STMP) registered a high volume of insider selling last week, so let’s take a look at some recent developments that might have triggered the wave of insider selling. Director Lloyd I. Miller III sold several blocks of shares last week, which were held through different accounts. According to a recent Form 4 filing, the Director unloaded 70,000 shares on Friday at prices that ranged from $114.24 to $120.00 per share, of which 14,741 units of common stock were held directly, 8,028 shares were held in a trust account, 32,904 shares were held through Milfam I L.P. and Milfam II L.P., and 14,327 units were held via a trust fund called Trust A-4 – Lloyd I. Miller. After the recent transactions, the Director holds a direct ownership stake of 200,801 shares, along with several hundred thousand shares held indirectly.

The shares of the provider of Internet-based mailing and shipping solutions are up by a whopping 103% over the past 12 months, which seems to justify the recent insider selling. Even so, we still need to find out whether Stamps.com has indeed reached a fair valuation. The recent insider selling comes after Stamps.com Inc. (NASDAQ:STMP) released a better-than-expected fourth-quarter earnings report, which sent the stock surging by more than 20%. The company generated total revenue of $214.0 million during 2015, up from $147.3 million in 2014. Stamps.com’s service revenue, which accounted for nearly 83% of total revenue in 2015, increased by 53% year-over-year to $176.7 million, due to an increase in annual average paid customers and annual average service revenue per paid customer. The company’s exceptional performance is partially attributable to synergies achieved from its acquisitions of ShipStation and ShipWorks in 2014. Wall Street analysts anticipate Stamps.com generating earnings per share of $6.20 for 2016, which yields a forward P/E multiple of 19.12. Although the company appears to have a rich valuation at the moment, Stamps.com has yet to realize synergies from its recent acquisition of Endicia, a provider of shipping technologies and solutions for shipping. The number of hedge funds in our system with stakes in the company dropped to 22 from 27 during the December quarter. Billionaire Jim Simons’ Renaissance Technologies cut its stake in Stamps.com Inc. (NASDAQ:STMP) by 12% during the fourth quarter of 2015, to 587,324 shares.

Let’s head to the next page of this insider trading article, where we discuss the recent insider selling registered at CACI International Inc. (NYSE:CACI) and Campbell Soup Company (NYSE:CPB).