After a 5-year run that’s seen Avago Technologies’ (NASDAQ:AVGO) stock rise more than six-fold, insiders are seeing an opportunity to cash in and are selling shares in droves.
The latest sale was COO Bryan Ingram’s 60,219 share sale on June 18, netting him $8.5 million. This is on top of 66,395 shares sold earlier in the month of June, most of which was acquired through exercising stock options.
A single share sale isn’t necessarily in and of itself red flag but the trend of insider selling is worth noting for investors. In the month of June alone Avago Technologies insiders have sold 286,953 shares of stock, which is on top of hundreds of thousands of shares sold earlier this year. That could signal that they’re just cashing in on the stock’s strong run over the last few years or that they’re seeing less potential for the stock going forward. Given the high valuation the market has given the company the latter is looking likely.
Insiders are a signal for investors
While Avago Technologies’ stock has been on a tear the increased stock price hasn’t been driven by a big jump in earnings. In fact, shares trade at over 6x revenue and 56x earnings, both incredibly high multiples for investors to pay. And earnings have been fairly flat since 2012.
What insiders may be telling us is that the stock is overvalued and they’re going to cash in gains while they can. Investors should watch operations closely throughout 2015 because if they slip there may be confirmation that insiders are seeing weaker fundamentals than the market is expecting.
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