NEW YORK (TheStreet) -- Company insiders sell stock for a variety of reasons, some of which have nothing to do with how a company is performing: a down payment on a new home, a fancy sports car or a child's college education.
But when a handful of executives at the same company significantly pare their holdings, it can be a warning sign. The following companies experienced some of the more significant insider selling of the last few weeks.
Executives at the world's largest social media platform have been aggressively selling shares as the stock declined 10% from an all-time high of $96.95 on July 20 to $88.26 on Friday. The steep decline coupled with the insider sales begs the question do they really "like" the stock. Facebook shares were rising 1.2% to $89.31.
Board member Peter Thiel heads the list with a $100 million sale of 1.07 million Facebook shares on Aug. 11. The sale represents half his holdings. Meanwhile, David Fischer, vice president of marketing, sold 25,000 shares at an average price of $94.65 on Aug. 19. He has dumped a total of 121,250 shares in the space of three months to reduce his holdings by nearly one-third. CFO David Wehner sold 8,072 shares on Aug. 20, which represented 28% of his holdings. Colin Stretch, vice president and general counsel, and Susan-Desmond Hellmond, a board member, also trimmed their holdings this past week, although the amounts were not that significant.
Lastly, there was an option transaction worth mentioning. When insiders suddenly liquidate a large portion of their options, it can be a red flag. For example, had you noticed the CEO of Celladon (CLDN) selling roughly 60% of her vested options (that didn't expire until 2023) in the weeks leading up to the release of Phase II trial data for the company's heart failure drug, you could have avoided a lot of pain when the shares slumped more than 80% on the release of disappointing trial results.
This is mentioned because Facebook's chief technology officer, Michael Schroepfer, increased the biweekly sale authorization in his Rule 10b5-1 plan from 25,000 to 100,000 Class A options. Since July 1 he's sold a grand total of 375,000 Jan 2019 Class A options for total net proceeds of $33.6 million. These are already 100% vested, and Schroepfer also owns options with more distant expiration dates in 2020 and 2022, but that doesn't explain the urgency in selling options that have more than three years left until expiration.
The sales represented a sizable 34% reduction in his holdings of the Class A and B Jan 2019 options. Either he needed the cash for a down payment on the Taj Majal or he doesn't appear to be confident the company's shares will appreciate over the next three years. With a price-to-sales ratio approaching 17, Facebook's stock may be vulnerable if the company fails to maintain its high growth rate or the market suffers a major correction.
The wrestling media stock is down 18% since it hit a 52-week high on Aug. 5. Several executives at the company aren't pinning their hopes on a rebound and have been selling their shares lately. Michael Luisi, the president of WWE Studios, led the charge, selling 29,894 shares in the month of August for a take-down of $631,792. He swapped 25,000 of them for shares of an exchange fund, an investment vehicle that allows holders of large amounts of a single stock to diversify into a basket of other stocks while avoiding an immediate taxable event. The sales reduced his holdings in WWE by just over 40%.
Luisi was joined by Michelle Wilson, the company's chief marketing officer, who sold 25,000 shares, reducing her holdings by almost 30%; Kevin Dunn, an executive producer, who sold 40,000 shares, reducing his stake in the company by almost 20%; and Mark Kowal, who sold 6,000 shares, which trimmed his holdings by nearly one-third.
Stephanie McMahon Levesque, chief brand officer and the daughter of founder Vince McMahon, was also a large seller, liquidating 174,069 shares last month. However, if you include the B shares she hasn't yet converted, this represents just 7.1% of her entire holdings.
WWE recorded 17% year-over-year growth in revenue in the second quarter and healthy 31% growth in paid subscribers, so it's doubtful the company remains on the mat for long. Insiders may simply be taking profits after a healthy run this year that has seen the company's shares appreciate 52%.
Fortinet's stock has ridden a positive wave of publicity for internet security providers generated by a series of high-profile hacker attacks. Insiders have been selling en masse near the stock's 52-week highs, however. CFO Andrew Del Matto sold 3,250 shares at an average price of $41.32 on Sept. 1. He's now sold 9,750 shares of the stock for more than $297,000 in the last three months, reducing his holdings by just over 45%.
Even more disconcerting are the sales by Keith Jensen, the company's chief accounting officer, who sold 751 shares at an average price of $45.97 on Aug. 20. He has now dumped 99% of his holdings since selling 3,900 shares for $190,487 back on Aug. 5.
Lastly, while the dollar amount was insignificant, the 212 shares sold on the open market Aug. 18 by John Whittle, the vice president of corporate development, extinguished his holdings in the company.
Given the infectious insider selling over the course of the past month, investors in Fortinet must hope there's not a major breach in the price of the security. Trading at 8.2 times sales and at a forward price-to-earnings ratio of 59, the stock could be vulnerable in a market downturn.
Insiders have been active sellers of this provider of cloud-based software for nonprofit educational institutions. Michael Moe, a director, recently sold 344,672 shares at an average price of $34.34. He sold more than 1.3 million shares in the month of August alone, entirely liquidating his holdings.
James Shelton, the company's chief impact officer, joined him, selling more than 52% of his stake in the company on Aug. 11 to raise more than $875,000.
Lastly, Robert Cohen, the president and COO, sold 20,000 shares out of his trust on Sept. 1. He has now sold 80,000 shares in the last three months, representing 15% of his stake in the company. 2U is richly valued at a price-to-sales ratio of 11, and negative earnings and cash flow. The stock is up 77% so far this year, but the rash of insider selling suggests investors might want to do their homework before buying any shares.
This one's probably flying under the radar as the dollar amounts aren't huge but the cluster of insider selling in late August is worrisome.
Mark Costello, a vice president, jettisoned his remaining 4,295 shares for $69,888 on Aug. 24, followed three days later by Sharon Faltemier, a senior vice president, who sold 7,500 shares for proceeds of $124,262. Faltemier's sale was notable since it represented 99% of her entire stake in the company. Roger Levinson, a vice president, joined them, paring his holdings by 2,000 shares, or roughly 40%.
Revenue growth has been sluggish at this manufacturer of analog and mixed-signal semiconductors, so the recent wave of insider selling raises the possibility that the company's attempts at a turnaround may end up short-circuiting.