Welcome to edition 550 of Insider Weekends. Insider buying decreased last week with insiders purchasing $53.65 million of stock compared to $92.47 million in the week prior. Selling almost doubled with insiders selling $2.32 billion of stock last week compared to $1.22 billion in the week prior.
Insider activity has some seasonal effects where it ebbs and flows depending on whether companies are in earnings related quiet periods or not. We tend to see a significant slowdown in activity during the first month of each quarter and an increase in activity in the second month. When I saw this big spike in insider selling, I checked the data for every week of January for the last nine years and we have not seen this level of insider selling in a single week since 2012. Granted a big part of the spike last week was Carl Icahn selling $600 million worth of Herbalife (HLF) stock but even after excluding that sale, the level of insider selling far exceeds what we have seen in a single January week in the past nine years. I wrote the following in the conclusion to the U.S. Mergers and Acquisitions: A 2020 Report last night and this insider activity echoes that sentiment:
“As investors most of us came out of 2020 significantly ahead of where we started the year but the size of the current bubble has me very worried about 2021.”
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 43.32. In other words, insiders sold more than 43 times as much stock as they purchased. The Sell/Buy ratio this week compares unfavorably with the prior week, when the ratio stood at 13.17.
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.