We look at insiders buying and selling of their companies’ stock. Analyzing insider selling can be tricky, though, and does not guarantee a negative outlook. People sell for a variety of reasons: there are planned sales, employees retiring, and people just wanting to cash in their returns but they buy for one reason, to make money.
It’s normal to see insiders selling on a regular basis. That doesn’t raise red flags. However, we look for unusual patterns: insiders selling at 52-week lows (not something you want to see in a stock you own), cluster selling, and smart insiders(those that have exhibited a knack for timing),amongst others .
With the earnings season well underway, we are looking for a catalyst that can drive prices higher or lower. Two companies insiders were selling that grabbed our attention this past week were MSA and AAOI.
MSA Safety Inc. MSA a safety product and protection company that focuses on the oil, gas and mining industries was one short candidate that caught our eye. MSA has seen a significant uptick in insider selling in the 2017 fiscal year. We noticed that there has been more insider selling over the past six months compared to the previous five years. The next warning was a decrease in quarter one revenue from 2016 to 2017. The stock dropped from $77 to $72 after hours on August 3rd as a result of a disappointing earnings call.
Applied Optoelectronics Inc. AAOI a company that designs, manufactures, and sells fiber optics networking products. AAOI had an influx of insider selling during June and increased at a rate that seemed alarming. The company was at an all-time high last week and looked as though its earnings could reach expectations. We looked at this company as a potential short candidate, but in the end, we decided not to pull the trigger on shorting the stock. Shortly after earnings, the company’s stock plummeted by 33%.
While MSA and AAOI had clear signs of insider selling, YELP, another stock with copius amounts of insider selling saw its shares increase by over 35% since its earnings last week. Insider selling is just one aspect of many that we try to analyze.