Insider Weekends-February 7, 2016

Insider buying increased last week with insiders buying $87.63 million of stock compared to $27.94 million in the week prior. Selling also increased with insiders selling $825.55 million of stock last week compared to $267.17 million in the week prior.

The market took a turn for the worse last week with the S&P 500 dropping 3.1% for the week. Against this backdrop Kinder Morgan (KMI) declined -4.8% while Consol Energy (CNX) continued rallying with a gain of 14.61% for the week. The big event last week was a drop of $84 or nearly 44% in LinkedIn (LNKD) and “big data” company Tableau Software (DATA) losing half its value with a drop of 49.44%.

Investors were disappointed by 2016 projections from both companies when they reported results on Friday. When reviewing LinkedIn’s fourth quarter results and projections for 2016, I was surprised to see that the company expects “adjusted EBITDA” of $950 to $975 million in 2016 and stock based compensation expenses of $630 million. Is it any surprise that if you are going to give away 2/3rd of your income to management and employees as stock based compensation, investors are not going to want to own your stock? The collateral damage from this spread to other cloud software companies and one of them that is on my watch list, Atlassian Corporation Plc (TEAM), is now trading below its IPO price. This well-respected Australian software company still has its founders at the helm and makes the popular project management software called JIRA that is used by both small companies as well as Fortune 500 firms. As is usually the case with these high growth companies, the stock is trading for nearly 10 times trailing sales despite the recent drop.

Sell/Buy Ratio: The insider Sell/Buy ratio is calculated by dividing the total insider sales in a given week by total insider purchases that week. The adjusted ratio for last week dropped to 9.42. In other words, insiders sold more than 9 times as much stock as they purchased.The Sell/Buy ratio this week compares favorably with the prior week, when the ratio stood at 9.56. We are calculating an adjusted ratio by removing transactions by funds and companies and trying as best as possible only to retain information about insiders and 10% owners who are not funds or companies.

Insider Sell Buy Ratio February 7, 2016

Insider Sell Buy Ratio February 7, 2016

Note: As mentioned in the first post in this series, certain industries have their preferred metrics such as same store sales for retailers, funds from operations (FFO) for REITs and revenue per available room (RevPAR) for hotels that provide a better basis for comparison than simple valuation metrics. However metrics like Price/Earnings, Price/Sales and Enterprise Value/EBITDA included below should provide a good starting point for analyzing the majority of stocks.

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Disclosure: Clients of Signal Partners, LLC  and I may have positions in ...

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