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Insider Weekends: Trouble Under The Surface

  • December 5, 2021

The drop in the market during on Friday following the Thanksgiving holiday could have been attributed to a short trading session or a low volume session but market action last week pointed to further weakness that went beyond a single session or a single factor. What we are seeing is a perfect confluence of factors coming together to put downward pressure on the markets. While the S&P 500 was only down 1.2% last week, the Nasdaq was down 2.6% and the growth heavy ARK Innovation ETF (ARKK) was down an astounding 12.69% in a single week and is down more than 20% during the last month.

The biggest factor is the “don’t fight the Fed” situation with the Fed likely to accelerate its taper process and look at raising rates next year. A new COVID variant of concern, potential delisting of Chinese companies like Didi (DIDI) from U.S. exchanges and supply chain disruptions are all weighing on the market. Insiders have been the canary in the coal mine with highly elevated levels of insider selling that we have highlighted multiple times during the last three weeks. Insiders sold $69 billion worth of stock this year, up 30% from 2020 and up 79% from a 10 year average according to this CNBC article.

The impact on growth stocks has been even more profound with many of them dropping sharply after earnings reports that failed to excite investors. DocuSign (DOCU) dropped more than 42% in a single day on Friday and Asana (ASAN) lost nearly a fourth of its value on the same day, culminating a week when it lost nearly 40%. Asana topped our list of insider purchases once again this week with CEO Dustin Moskovitz picking up another 250,000 shares for $25 million. Given that he has been buying under an established 10b5-1 plan, I would not be surprised if we see more purchases from him in the coming weeks. The stock is still up more than 50% from where he started buying under $40 per share in early June but has dropped sharply from its highs of over $140 in early November.

While third quarter sales for Asana were up 70% and billings were up 56% year-over-year, the rate of growth decelerated compared to the prior quarter when billings were up 81%. The company generated over $100 million in quarterly revenue for the first time. Despite this pullback, the stock still looks expensive. We wrote the following about Asana and the entire SaaS sector in our insider weekends post last week,

While Asana has a long runway ahead of it, I think valuations across the SaaS sector are extremely stretched. Several years ago, I had built a model for a SaaS company in my portfolio and the price has generally stayed somewhere between my base case and bull case scenarios. However in recent months, the stock has trended well above my bull case. It does not matter how I attempt to value the company, valuation looks extremely stretched. I know it is no longer fashionable to attempt to value a company on traditional metrics but when it becomes hard to value the company at a reasonable multiple even looking out a decade, something is not quite right. 

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