Welcome to edition 518 of Insider Weekends. Insider buying decreased significantly last week with insiders purchasing $107.94 million of stock compared to $305.64 million in the week prior. Selling also decreased with insiders selling $1.33 billion of stock last week compared to $2.89 billion in the week prior. Most of the management insider buying appears to be concentrated in the financial sector as you can see from the sector heat map below. A large part of this was driven by the Chairman of the insurance company Mercury General buying in size for a second week in a row.
While there were some interesting transactions on the buy side, what caught my eye was the selling by the insiders of Moderna (MRNA). Moderna kicked off a powerful broad-based rally last Monday when it reported promising results for a COVID-19 vaccine it was testing. The stock shot up nearly 30% to $86.14 at the open on Monday based on this pre-market news but settled down during the day to close at $80 with a gain of “just” 20%. I was perplexed by such a huge reaction to phase 1 trial results that were positive for, get this, just 8 participants.
By the end of that day, Moderna had announced it was going to raise $1.25 billion in a secondary stock offering and priced it at $76 per share. The icing on the cake was that Moderna executives were selling their stock on the open market on Monday, Tuesday and Wednesday as you can see here. While some of these were options related sales and others were part of an established 10b5-1 selling plan, these transactions and the secondary offering don’t pass the smell test. As folks who are familiar with the 10b5-1 plan will tell you, it can be gamed and the reason we have the 10b5-1 plan is because its predecessor, the 10b-5, was also gamed by some insiders. Matt Egan and Chris Isidore wrote an excellent article discussing these sales in more detail. By the end of the week, Moderna had given back most of its Monday gains but the S&P 500 continued to hold on to its gains.
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 went up to 12.31. In other words, insiders sold more than 12 times as much stock as they purchased. The Sell/Buy ratio this week compares unfavorably with the prior week, when the ratio stood at 9.48.
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.