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.

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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).

CACI International Inc. (NYSE:CACI) had a few insiders discard shares in the past two weeks. To begin with, President and Chief Executive Officer Kenneth Asbury dumped half of his stake on Wednesday, at a price of $93.80 per share, remaining with 25,264 shares. Director Warren R. Phillips unloaded 1,065 shares on February 16 at a price of $94.92 per unit, cutting his overall holding to 4,935 shares. The Director was granted 1,230 restricted stock units in November 2015 that automatically convert into 1,230 shares of common stock on a one-for-one basis (307 shares on February 17, 308 shares on May 17, 307 shares on August 15, and 308 shares on November 13).

The provider of computer services to intelligence and defense agencies has seen its stock advance by 8% over the past 52 weeks despite experiencing a serious pullback from the beginning of December through the end of January. CACI International generated total revenue of $1.65 billion during the six months that ended December 31, up by 1.4% year-over-year. The increase was mainly attributable to an increase in investigations and litigation support and business systems contracts. It should be noted that revenue from contracts with U.S government agencies accounted for 93.5% of the company’s total revenue during the second half of last year. Meanwhile, the shares of CACI are trading at 14.71-times expected earnings, slightly below the forward P/E multiple of 15.00 for the Information Technology industry. Hence, it appears that the “fair valuation” theory is legitimate in this case. A total of 15 hedge funds tracked by Insider Monkey were invested in the company at the end of the fourth quarter, amassing 3.70% of its common stock. Ken Griffin’s Citadel Advisors owns 275,158 shares of CACI International Inc. (NYSE:CACI) as of December 31.

The insider buying activity at Campbell Soup Company (NYSE:CPB) has been nonexistent in recent years, whereas the volume of insider selling has been gaining weight at a high pace. Senior Vice President and Chief Human Resources Officer Robert W. Morrissey sold 24,158 shares on Friday at $62.52 apiece, trimming his stake to 71,691 shares. The shares of the manufacturer and marketer of branded convenience food products have advanced by 32% over the past year and trade near their all-time high reached in 1998. Just recently, analysts at Credit Suisse reiterated their ‘Underperform’ rating on the stock and increased the price target on it to $60 from $57, after the canned soup maker released its second-quarter results for fiscal year 2016. However, analysts and investors are anticipating of a pullback for the stock, as the average price target among the 19 analysts covering the stock is approximately $59 per share, below its current price.

Campbell Soup Company generated $4.40 billion in sales during the first half of fiscal year 2016 ended January 31, down by 2% year-over-year, due to currency translation impact and lower volume. Meanwhile, the stock is priced at 19.79-times expected fiscal year 2017 earnings, below the forward P/E multiple of 21.00 for the Packaged Foods industry and significantly above the 16.15 multiple of the S&P 500 Index. Even though the recent insider selling should not be seen as a bearish signal, the upside potential for the stock appears to be limited at the moment. There were 15 hedge funds in our system with stakes in the company at the end of December compared with 18 registered at the end of the third quarter. Israel Englander’s Millennium Management had 374,279 shares of Campbell Soup Company (NYSE:CPB) in its portfolio at the end of 2015.

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