Insider Weekends: Trouble Under The Surface

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. 

I have been writing a series of articles on Seeking Alpha that in probably best classified as “broken growth stocks” and wrote about Opendoor Technologies (OPEN) and Zillow (Z) two weeks ago here. I’ll do a deeper dive into Asana and Uber in the coming weeks.

Welcome to edition 596 of Insider Weekends. Insider buying decreased last week with insiders purchasing $181.71 million of stock purchased compared to $228.13 million in the week prior. Selling also decreased to $3.91 billion compared to $4.55 billion in the week prior.

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 21.5. In other words, insiders sold almost 22 times as much stock as they purchased. The Sell/Buy ratio this week was unfavorable compared to the prior week when the ratio stood at 19.94.

Notable Insider Buys:

1. Asana, Inc. (ASAN): $66.98

President, CEO, & Chairman Dustin A. Moskovitz acquired 250,000 shares of this work management platform, paying $100.00 per share for a total amount of $25 million. Mr. Moskovitz increased his stake by 4.47% to 5,839,676 shares with this purchase.

You can view the list of recent insider transactions for Asana, Inc. here.

2. Continental Resources, Inc. (CLR): $43.01

Director Harold Hamm acquired 250,000 shares of this oil and natural gas exploration and production company, paying $44.05 per share for a total amount of $11.01 million. Mr. Hamm increased his stake by 1.81% to 14,050,217 shares with this purchase.

You can view the list of recent insider transactions for Continental Resources, Inc. here.

3. PennyMac Financial Services, Inc. (PFSI): $67.81

Director Farhad Nanji acquired 160,854 shares of this mortgage finance company, paying $64.97 per share for a total amount of $10.45 million. These shares were purchased indirectly by MFN Partners.

You can view the list of recent insider transactions for PennyMac Financial Services, Inc. here.

4. Alleghany Corporation (Y): $658.32

President Joseph Patrick Brandon acquired 8,500 shares of this insurance company, paying $655.25 per share for a total amount of $5.57 million. Mr. Brandon increased his stake by 36.03% to 32,089 shares with this purchase.

You can view the list of recent insider transactions for Alleghany Corporation here.

5. Accelerate Diagnostics, Inc. (AXDX): $4.97

Director Jack W. Schuler acquired 1,000,000 shares of this in vitro diagnostics company, paying $5.00 per share for a total amount of $5 million. These shares were purchased indirectly through a trust.

You can view the list of recent insider transactions for Accelerate Diagnostics, Inc. here.

You can view the full list of purchases from this Insider Buying page.

Notable Insider Sales:

1. Tesla, Inc. (TSLA): $1014.97

CEO Elon Musk sold 934,091 shares of Tesla for $1085.17, generating $1.01 billion from the sale.

You can view the list of recent insider transactions for Tesla, Inc. here.

2. Walmart Inc. (WMT): $137.51

Shares of Walmart were sold by 2 insiders:

• Director Robson S. Walton sold 2,231,343 shares for $139.79, generating $311.91 million from the sale. These shares were sold indirectly through a trust.
• President and CEO Douglas McMillon sold 9,708 shares for $146.77, generating $1.42 million from the sale.

You can view the list of recent insider transactions for Walmart Inc. here.

3. Unity Software Inc. (U): $146.88

Shares of this real-time 3D development platform were sold by 7 insiders:

• Director David Helgason sold 300,000 shares for $163.67, generating $49.09 million from the sale.
• President and CEO John S. Riccitiello sold 229,072 shares for $164.32, generating $37.64 million from the sale. 12,248 of these shares were sold as a result of exercising options immediately prior to the sale.
• Director Egon Durban sold 129,763 shares for $178.79, generating $23.2 million from the sale.
• SVP & GM, Consumer Clive Downie sold 40,977 shares for $179.05, generating $7.34 million from the sale. These shares were sold as a result of exercising options immediately prior to the sale.
• SVP & GM, Operate Solutions Ingrid Lestiyo sold 11,924 shares for $175.33, generating $2.09 million from the sale. These shares were sold as a result of exercising options immediately prior to the sale.
• SVP, CLO & GC & Corp Secretaryy Ruth Ann Keene sold 6,678 shares for $175.35, generating $1.17 million from the sale. These shares were sold as a result of exercising options immediately prior to the sale.
• SVP & GM, Create Solutions Marc Whitten sold 2,007 shares for $174.47, generating $350,156 from the sale. These shares were sold as a result of exercising options immediately prior to the sale.

You can view the list of recent insider transactions for Unity Software Inc. here.

4. Arista Networks, Inc. (ANET): $121.2

Shares of this networking company were sold by 6 insiders:

• Chief Development Officer Andreas Bechtolsheim sold 500,000 shares for $124.52, generating $62.26 million from the sale. These shares were sold indirectly through a trust.
• SVP, Chief Operating Officer Anshul Sadana sold 24,321 shares for $124.61, generating $3.03 million from the sale. These shares were sold as a result of exercising options immediately prior to the sale.
• Senior Vice President, CFO Ita M. Brennan sold 14,800 shares for $124.36, generating $1.84 million from the sale.
• Director Charles H. Giancarlo sold 6,660 shares for $124.38, generating $828,369 from the sale.
• SVP and General Counsel Marc Taxay sold 6,354 shares for $124.07, generating $788,365 from the sale. 2,004 of these shares were sold as a result of exercising options immediately prior to the sale.
• Chief Platform Officer John F. McCool sold 1,336 shares for $125.13, generating $167,174 from the sale.

You can view the list of recent insider transactions for Arista Networks, Inc. here.

5. Applied Materials, Inc. (AMAT): $145.83

President and CEO Gary E. Dickerson sold 300,000 shares of this semiconductor company for $152.79, generating $45.84 million from the sale.

You can view the list of recent insider transactions for Applied Materials, Inc. here.

You can view the full list of sales from this Insider Sales page.

The list of all insider purchases and sales by management people is only available to InsideArbitrage Premium and Plus members.

Disclaimer: I hold a long position in Zillow (Z) and put option on SPY. Please do your own due diligence before buying or selling any securities mentioned in this article. We do not warrant the completeness or accuracy of the content or data provided in this article.