What the Insider Selling at these Companies Could Tell Investors About Their Future

Most market participants do not pay too much attention to insider selling activity, as insiders may sell shares for various reasons unrelated to their companies’ prospects. The increased usage of stock options as part of employees’ compensation has distorted the data on insider trading behavior, which makes it close to impossible to accurately interpret insider selling. Nonetheless, insider selling might indicate insiders’ beliefs that their company’s stock price reflects current market conditions and that the stock is fairly valued. Similarly, heavy insider selling may suggest that the market conditions for a company are not anticipated to improve any time soon, so it does make sense to keep track of insider selling. However, individual investors need to focus on clusters of insider selling, which can be more telling than individual insider sales. The Insider Monkey team has identified three companies which registered noteworthy insider sales recently, one of which witnessed a cluster of insider selling that investors should make note of.

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).

Cintas Corporation (NASDAQ:CTAS) saw one of its most influential insiders sell big last week. According to a Form 4 filing, President and Chief Operating Officer James P. Holloman sold 7,462 shares last Friday at a price of $85.74 per share. Following the recent selloff, the President holds an ownership stake of 107,219 shares. The provider of corporate identity uniforms and other related business services has seen its stock price appreciate by 7% over the past year or so, thanks to the strong organic growth that it realized last year. Cintas Corporation (NASDAQ:CTAS) reported total revenue of $2.42 billion for the six months that ended November 30, up by 8.7% year-over-year. The company’s top-line figure increased organically by 6.6% year-over-year due to higher sales volume. Its diluted earnings per share from continuing operations reached $1.96, which represented a 12.0% year-over-year rise. Nevertheless, some investors might find Cintas Corporation’s stock relatively expensive at the moment if bearing in mind the company’s valuation metrics. The stock trades at a forward price-to-earnings ratio of 19.39, which is visibly above the average of 15.75 for the companies included in the S&P 500 Index. Meanwhile, 27 smart money investors monitored by Insider Monkey were shareholders of the company at the end of September, stockpiling 11% of its outstanding common stock. First Eagle Investment Management is the largest shareholder of Cintas Corporation (NASDAQ:CTAS) within our database, holding 8.22 million shares as of September 30.

Let’s head to the next two pages of this insider trading article, where the insider sales registered at Tech Data Corp (NASDAQ:TECD) and General Communication Inc. (NASDAQ:GNCMA) are discussed.