Given that insider buying can often be a bullish indicator, you may assume the inverse is true regarding insider selling stocks.
However, there can be many reasons a particular stock is experiencing a heavy amount of selling from corporate insiders, like C-suite executives, board members, and large shareholders.
Insiders may buy for one reason (confidence in the stock’s potential to appreciate in value), they sell for many reasons, not just because of a lack of confidence in a stock’s future prospects.
For instance, insiders will reduce their personal positions in stocks for diversification, as well as for estate planning purposes. An executive’s exit from a company can also result in a large insider selling transaction.
Yet while these reasons may be behind recent transactions with a few of the seven insider selling stocks listed below, when it comes to most of them, it may be cause for concern.
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This isn’t the first time I’ve talked about insider selling with Autozone (NYSE:AZO). Last May, I discussed how the company’s CEO and other insiders had sold hundreds of millions worth of shares.
This was around the same time concerns were rising about slowing growth with the auto parts retailer.
Since then, however, Autozone’s fiscal results are again exceeding expectations. Shares have recovered from a sharp post-earnings pullback experienced shortly before my prior coverage of AZO stock. Still, while shares performed well despite heavy insider selling, continued selling by insiders could be cause for concern.
Insiders have not bought shares since Q2 2023, but have continued to sell tens of millions worth of shares each quarter. Although forecasts calling for steady earnings growth suggest that more gains lie ahead, if you currently own AZO, follow the lead of insiders and take profit as well.
Coinbase Global (COIN)
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Since last fall, shares in Coinbase Global (NASDAQ:COIN) have surged and sank. Mainly, because of the big run-up in excitement regarding the regulatory approval of Bitcoin (CCC:BTC-USD) ETFs, and the heavy “selling on the news” that happened when Bitcoin ETFs received the regulatory green light.
When the short-lived COIN stock rally took shape, insiders at this leading provider of cryptocurrency financial services pounded the “sell” button themselves. Sales by insiders totaled $147 million during Q4 2023 and so far in Q1 2024, with zero purchases.
Even after the aforementioned boom and bust, I would still consider COIN one of the insider selling stocks to avoid. While there are some positives on the horizon, like a dismissal of the Securities and Exchange Commission’s lawsuit against Coinbase, this and other catalysts could end up being “sell the news” type events for the stock as well.
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DraftKings (NASDAQ:DKNG) shares have performed very well over the past twelve months, surging by around 163%.
Investors have become very bullish on the sports book operator, given the company’s strong market share in the fast-growing U.S. online gambling market, as well as the prospect of DraftKings reaching profitability sooner-than-expected.
But despite all this confidence that DKNG stock will continue to run hot, insiders are not exactly letting their profits ride.
Throughout last year, there was an elevated level of insider selling. C-level executives and board members have sold $175.87 million worth of DKNG in the past year, $88 million of which was sold during Q4 2023.
As I have argued previously, DraftKings’ growth is decelerating. Factors like competition, and the maturity of the U.S. gambling market, could mean disappointing numbers down the road, resulting in DKNG coughing back some or much of these gains.
Even among insider selling stocks, there has been a heavy amount of insider selling with Dynatrace (NYSE:DT) lately. Over the past year, insiders at the performance monitoring software provider have sold a staggering $2.08 billion worth of shares.
Granted, the lion’s share of these sales have not been from an individual executive/board member. This heavy insider selling number is the result of former majority owner Thoma Bravo (a private equity firm) paring down its position in the company.
Sure, it’s okay for a private equity firm to realize gains. Even so, consider how DT is regarded as one of the AI stocks. It’s possible Thoma Bravo has been selling to capitalize on this investing trend while it lasts.
Considering Dynatrace shares could correct if the “AI bubble” bursts this year, perhaps taking profit if you own is the best course of action right now.
Planet Fitness (PLNT)
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Planet Fitness (NYSE:PLNT) is another example of a unique insider selling situation. Last quarter, insiders at the fitness center franchising company sold a total of $66.57 million worth of shares.
However, this insider selling has been almost entirely one individual: former longtime CEO Christopher Rondeau.
In December, Rondeau sold around 1 million shares of PLNT stock, representing about half of his personal position.
Yet while it makes sense that an outgoing CEO would decide to cash out, and the SEC filing itself says Rondeau is selling “for purposes of financial planning and diversification,” you may not want to dismiss this sale as no reason for concern.
PLNT has bounced back since Rondeau’s unexpected ouster last September. Although this rebound has been driven by stronger fiscal results, as a Seeking Alpha commentator argued last month, there is still much uncertainty about the company’s near-term growth outlook.
Source: T. Schneider / Shutterstock.com
As discussed recently, Atlassian (NASDAQ:TEAM) may be at risk of dropping, if the latest wave of “AI mania” morphs into an AI sell-off. However, this is not the only reason why you may want to be cautious about shares in this software stock.
Besides the possibility of TEAM stock becoming inflated because of investors going overboard about its supposed AI catalysts, the fact that Atlassian has become of the insider selling stocks is another potential red flag. Over the past year, insiders have sold nearly $240 million worth of shares.
This comes as TEAM has soared by more than 60%, climbing to a triple-digit forward valuation because of investors betting that the generative AI trend bodes well for the company’s growth and future profitability.
Even as sentiment remains bullish, with insiders deciding to “take the money and run,” perhaps you should consider doing so as well.
Zoom Video Communications (ZM)
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Insider selling at Zoom Video Communications (NASDAQ:ZM) has been far less heavy lately. At least, when compared to the level of selling insiders engaged in during this video conferencing company’s pandemic-era heyday.
Since last year, ZM stock insiders made sales totaling around $30 million. The recent cashing out may indicate management’s lack of confidence in the stock’s future performance. Yes, Zoom is relatively cheap, at 14.1 times forward earnings.
That said, sell-side forecasts are still calling for slightly negative earnings growth. With this, it’s hard to see ZM shaking off its current “value trap” reputation anytime soon.
Unless more evidence emerges that factors such as cooling inflation and lower interest rates could produce a boost in results in a few quarters’ time, it may be best to assume Zoom will keep on underperforming.
On the date of publication, Thomas Niel held Bitcoin. He did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Thomas Niel, contributor for InvestorPlace.com, has been writing single-stock analysis for web-based publications since 2016.
Artificial Intelligence, Automotive, Consumer Discretionary, Travel, Casino, Communications, Financial, Fintech, Media, Retail, Technology
I'm an experienced financial analyst with a deep understanding of stock markets and investment strategies. Over the years, I have closely monitored and analyzed various industries, gaining valuable insights into market trends, company performances, and the behavior of insiders.
In the article you provided, the author discusses insider selling in relation to certain stocks and provides insights into potential concerns for investors. Let's break down the key concepts and information mentioned in the article:
Insider Buying and Selling:
- The article acknowledges that insider buying is often seen as a bullish indicator, indicating confidence in a stock's potential to appreciate. However, it highlights that insider selling does not necessarily imply a lack of confidence in a stock's future prospects.
Reasons for Insider Selling:
- The author notes that insiders sell for various reasons, such as diversification, estate planning, and personal financial goals. An executive's departure from a company can also lead to significant insider selling.
- Despite positive fiscal results and recovery in share prices, continued insider selling at Autozone (AZO) is flagged as a potential concern. The article advises investors to consider taking profits in line with insider actions.
Coinbase Global (COIN):
- Insider selling at Coinbase (COIN) is attributed to the surge and subsequent decline in the stock, possibly influenced by regulatory developments. The author suggests caution even with positive catalysts on the horizon.
- Despite strong performance, insider selling at DraftKings (DKNG) is highlighted. The article suggests that growth may be decelerating, pointing to factors like competition and market maturity.
- Dynatrace (DT) is noted for significant insider selling, primarily by the private equity firm Thoma Bravo. The article raises the possibility that selling may be linked to capitalizing on the AI trend, advising caution in case of a potential AI bubble burst.
Planet Fitness (PLNT):
- Insider selling at Planet Fitness (PLNT) is attributed to the former CEO's financial planning and diversification. The article notes uncertainty about the company's near-term growth outlook.
- Atlassian (TEAM) is flagged as a potential risk due to insider selling amid the "AI mania." The article suggests caution, especially with the stock's high valuation driven by investor optimism about AI catalysts.
Zoom Video Communications (ZM):
- Insider selling at Zoom Video Communications (ZM) is discussed, with the recent cashing out potentially indicating management's lack of confidence. The article suggests a cautious approach, considering factors like sell-side forecasts and the company's current reputation as a "value trap."
The article provides a comprehensive analysis of insider selling across various industries, emphasizing the importance of considering insider actions alongside other market indicators.