With

Ameritrade's

(AMTD) - Get Report

biggest shareholders cashing in some chips, many are forced to wonder if the stock is topping out.

After a 133% run-up this year and numerous downgrades from analysts in recent weeks, Ameritrade shareholders on Monday filed to sell more than 44 million shares. The company also announced that it would buy back 7.5 million shares from the sellers.

"This confirms our view that the stock is trading above fair value," said Michael Ford-Taggart, an analyst at Morningstar. "Why else would they be getting out of the stock?"

Omaha, Neb.-based Ameritrade said Bain Capital, TA Associates and SilverLake Partners will sell about 40.9 million of their 127 million shares. Ameritrade fell 4% on the news, or 61 cents, to $13.10.

"Over time, you'll see them take their entire stake down to zero, because they're venture capitalists and they'll want to get their money out to put in other projects," Ford-Taggart said. "But they can't do it all at once."

Bain, TA Associates and SilverLake acquired a large stake in Ameritrade when the company purchased Datek in April last year. The three firms, which owned a majority interest in Datek, sold the company to Ameritrade for $1.3 billion. Monday's sale raises roughly $535 million, covering the lion's share of their

estimated $700 million investment in both Datek and Island in December 2000 -- a gutsy move at a time of serious bubble deflation. (Island was sold to

Instinet

(INGP)

for about $500 million in June 2002.)

Despite the decline in share price Monday, Matt Snowling, an analyst at Friedman Billings Ramsey, said the move "should eliminate some of the uncertainty surrounding the exit strategy of the private equity groups."

Merrill Lynch analyst Colin Clark said these investors still will own 20% of Ameritrade after the transaction, down from 29% before. And he raised his 2004 estimate to 55 cents from 54 cents, saying AmeriTrade's stock repurchase should be slightly accretive to earnings next year.

Still, other analysts found it hard to draw positive inferences, noting that Chairman and founder Joe Ricketts and his family also plan to sell about 3.3 million of their 121 million shares. The selling shareholders could also sell an additional 6.6 million shares to meet demand.

"It's not like the Ricketts family is taking its stake down to zero, but again it does confirm our view that the stock is above fair value and that insiders realize this," Ford-Taggart said.

Ford-Taggart believes fair value for the stock lies at just $4. That means he expects the company to produce earnings of $4 per share in total over the next 10 to 15 years. "On an operating level, they're performing very well but the stock price predicts nirvana and nirvana is not going to happen any time soon," he said.

Ameritrade said profits rose last quarter as trading activity picked up considerably, and the company raised its estimates for 2004. But at 25 times next year's earnings, the stock is considered by many to be too expensive. Some bullish investors justify Ameritrade's high price tag by saying that the company is the most direct play on a recovery in retail trading and should exhibit faster growth than its peers in a better market environment. But in the past few weeks, several analysts have cut their ratings on Ameritrade, citing the firm's lofty valuation.

"This is a company that does one thing and does it well, they got a great boost this year from active traders returning to the equity market over the summer and a boost from higher margin trading activity, and with all that we still don't see why the stock should be trading at three or four times book value," Ford-Taggart said.

While valuation is perhaps the biggest concern right now, some analysts worry about a possible rise in interest rates next year. Ameritrade did well in its most recent quarter in part because it was able to manage expenses so effectively. But interest expense on account balances is less easy to control and if the

Federal Reserve

hikes rates next year, costs could move higher. Of course, an increase in interest rates would suggest a better economy, a stronger stock market and a solid retail trading environment, which could help to mitigate some of the damage.