While the interpretation of insider buying activity is quite straightforward, heavy insider selling does not automatically raise red flags within the investment community. The increased usage of equity-based compensation has distorted insider trading data, which makes it particularly cumbersome to accurately interpret insider selling. At the end of the day, directors and officers sell shares for numerous reasons such as tax payments or diversification, so it is practically impossible to find out why insiders unload their equity holdings. Nonetheless, when certain companies witness three or more insiders sell shares within a short period of time, outside investors could certainly interpret that kind of activity as a sign that those companies are approaching or even exceeding fair market value according to the estimates of their insiders. If the individuals running companies are jettisoning shares, it does not necessarily make sense for non-insiders to own those companies’ shares. Insider Monkey processed numerous Form 4 filings submitted with the SEC on Friday and pinpointed three companies with eye-catching insider selling.
Through extensive research, we have determined that the due diligence that the investors in our database employ, as well as their long-term focus makes them perfect targets to emulate. However, the results of our analysis have also shown that the small-cap picks of these funds can generate much better returns, with the 15 most popular small-cap stocks beating the market by an average of 95 basis points per month (read more details here).
This Airline’s CEO Sold Big This Past Week
To begin with, the man in charge of Delta Air Lines Inc. (NYSE:DAL) reported selling a massive amount of shares last week. Chief Executive Officer Richard H. Anderson sold 123,704 shares on Friday at prices varying from $47.40 to $47.51 per share, of which 39,655 shares were sold from the living trust of Mr. Anderson’s wife. After the recent sales, Mr. Anderson, who recently announced his intention to retire as CEO in May, holds a direct ownership stake of 326,708 shares. Mr. Anderson will step down from his role as CEO effective May 2 and will be elevated to Executive Chairman of the company’s Board.
The recent insider selling comes after the Atlanta-based airline released its financial results for the March 2016 quarter. Delta Air Lines Inc. (NYSE:DAL)’s operating revenue decreased by 1.5% year-over-year, to $9.25 billion, slightly below analysts’ expectations of approximately $9.28 billion. The company’s March quarter top-line figure was mainly impacted by foreign currency headwinds, which impacted the figure by $125 million, as well as the terrible events that recently happened in Brussels. Passenger revenue per available seat mile (PRASM) decreased by 4.6% year-over-year on 2.7% higher capacity. The company’s pre-tax income for the quarter reached $1.4 billion, which marked an increase of $248 million year-over-year, mainly due to lower fuel prices and strong corporate demand. Adjusted net income was $1.32 per diluted share, notably higher than the $1.20 figure anticipated by analysts. Delta Air Lines’ management anticipates passenger unit revenue for the June 2016 quarter to decline by 2.5%-to-4.5% year-over-year.
Shares of Delta Air Lines are 6% in the red year-to-date and trade at only 6.7-times expected earnings. As price-to-earnings multiples are mostly relevant when making a peer-to-peer comparison, investors should note that American Airlines Group Inc. (NASDAQ:AAL) has a forward P/E multiple of 6.4 and United Continental Holdings Inc. (NYSE:UAL) has a slightly lower ratio of 6.3. A total of 108 hedge funds tracked by Insider Monkey were invested in the Atlanta-based airline at the end of the fourth quarter, and held almost 20% of the company’s outstanding shares. Charles Paquelet’s Skylands Capital upped its stake in Delta Air Lines Inc. (NYSE:DAL) by 38% during the first quarter of this year, to 212,400 shares.