Possible reasons for an insider selloff?

[Nox]

Greetings! I've got a question regarding the most basic of questions: insider sellout.

The company in question came under my review as a possible long-term shorting candidate due to being in a weak industry, as well as (in my newbie opinion) heightened earnings expectations; despite that, the company seemed to have strong fundamentals (and, indeed, has been trending up for some time now).

However, what caught my eye when reviewing it was the huge insider selloff rate with no buy - over 2 mil shares, or 90%, were liquidated within the last six month; out of them, almost 1.3 mil happened within the last month.

My question is, should this be considered a definite "nail in the coffin" that ought to seal my decision to short, or may a rapid and massive non-takeover selloff be caused by some other factor?

Thank you.

 

[vikana]

You have to remember, that insider selling often is exercise of incentive stock options. In reality that doesn't mean a whole lot, since there are all sorts of rules for when options can be exercised (such as by a certain date), and the owner has no money at risk.

Insider buying, however, means that someone is putting his/her money on the line.

 

[alanm]

I assume we're talking about a tiny company. Gotta ask yourself "who bought those shares?", especially during an uptrend. Were they purchased in a single transaction (or handful of them)? Why not ask the company directly? Huge insider block moves are usually arranged in advance. Are you saying 90% of the shares outstanding is 2M shares, or 90% of the insider holdings, and then what is the total shares outstanding?

Personally, if I spend 10-20 years building a multi-million dollar company, am lucky enough to be able to take it public and get enough interest to keep the stock moving up, I'm going to want to start reaping the rewards of my labor, and generate some cash to have fun with. I already took the big gamble in the early stages, and deserve to get paid for it.

 

[Nox]

The company I am talking about is actually quite a large-cap - good ways over a billion. I have looked for any possible takeovers, etc, but so far have not seen any hint of them.

I do not wish to name the stock simply because I don't want to give a false impression of trying to lower it because I am planning to go short; I am merely wondering as to the possible reasons why shareholders may rapidly liquidate over 90% of the stock of a big public company that, at least from my research, seems to possess great fundamentals.

 

[murray t turtle]

Quote from Nox:

Greetings! I've got a question regarding the most basic of questions: insider sellout.

The company in question came under my review as a possible long-term shorting candidate due to being in a weak industry, as well as (in my newbie opinion) heightened earnings expectations; despite that, the company seemed to have strong fundamentals (and, indeed, has been trending up for some time now).

However, what caught my eye when reviewing it was the huge insider selloff rate with no buy - over 2 mil shares, or 90%, were liquidated within the last six month; out of them, almost 1.3 mil happened within the last month.

My question is, should this be considered a definite "nail in the coffin" that ought to seal my decision to short, or may a rapid and massive non-takeover selloff be caused by some other factor?

Thank you.

=========================
Nox;
No Nox, would not consider it a nail in the coffin, however ;
thats in you favor , a weak sector, cause there are not many of those right now.

Maybe a good short, but for sure have a max % loss written if/when you enter.

Shorted ERICY , when it had NO earnings,
in a bear market,
insiders were fired/quit probably beacuse of poor performance,
shorted $7.00 area, glad i had a stop loss plan-its over $34 now.

 

[Hydroblunt]

Quote from Nox:

The company I am talking about is actually quite a large-cap - good ways over a billion. I have looked for any possible takeovers, etc, but so far have not seen any hint of them.

I do not wish to name the stock simply because I don't want to give a false impression of trying to lower it because I am planning to go short; I am merely wondering as to the possible reasons why shareholders may rapidly liquidate over 90% of the stock of a big public company that, at least from my research, seems to possess great fundamentals.

You might as well mention the ticker because you are not giving enough details on the insider sales. What do you mean "90% of the stock"? Do you mean of the outstanding shares or of the insider holdings?
Most large cap have low insider holdings since they have been around for a while and the original founders have long been out of the game. Also, as mentioned, the sales could be deceiving as they may have been pre-planned and are options exercises.
Another thing to note is that following the insider sales may backfire hardcore. A certain stock I trade regularly & follow, one of the key insiders starting dumping back when the stock went from $5 to $15-17. Apparently he was not too bright and really miscalculated the value of the Coal segment. 6 months later it was hitting $45.
One thing I noticed about insider sales is that even after they dump, there is a secondary push by the institutions and & short squeezes. It's tough to figure out sometimes if the insiders truly are dumping right prior to the stock & company deteriorates or they are selling just because they feel like it.