Corporate insiders can buy or sell their companies’ shares through two simple means. Firstly, they can buy or sell shares through open market transactions. Secondly, they can use the Rule 10b5-1 trading plan, which provides insiders a means to conduct scheduled transactions without worrying about any securities fraud charges. However, the Insider Monkey team tracks only the spur-of-the-moment trades and tends to avoid examining trades conducted under trading plans, and there is a straightforward reason for doing so; a recent study found that spontaneous or opportunistic trades by insiders, which simply refers to trades that are not conducted in connection with trading plans, tend to generate higher returns. Moving on to the underlying purpose of this article, our team identified three companies that registered noteworthy insider sales over the past several days. This article will examine those trades and the current state of the companies in question.
Prior to discussing the insider trading activity, let’s make you familiar with what Insider Monkey does. At Insider Monkey, we track hedge funds’ moves in order to identify actionable patterns and profit from them. But why do we track hedge fund activity? From one point of view we can argue that hedge funds are consistently underperforming when it comes to net returns over the last three years, when compared to the S&P 500. But that doesn’t mean that we should completely neglect their activity. There are various reasons behind the low hedge fund returns. Our research indicated that hedge funds’ long positions actually beat the market. In our back-tests covering the 1999-2012 period, hedge funds’ top small-cap stocks beat the S&P 500 index by double digits annually (read the details here).
While the insider buying activity has been nonexistent at MarketAxess Holdings Inc. (NASDAQ:MKTX) since 2011, the insider selling activity has been gaining pace over the past several months. According to a Form 4 filing, Chief Information Officer Nicholas Themelis sold 10,683 shares on Wednesday at prices that ranged from $113.50 to $114.16 per share, trimming his total stake to 72,181 shares. The company operates an electronic trading platform for corporate bonds and other fixed-income instruments and its stock has advanced by 38% over the past 12 months, which could serve as an explanation for the high insider selling at the company. MarketAxess Holdings Inc. (NASDAQ:MKTX) primarily generates revenue from commissions, which represent a percentage of the notional dollar volume of bonds traded on the company’s platform.
The recent sale comes after MarketAxess released record financial results for fiscal year 2015. The company’s revenue for 2015 reached a record figure of $303.1 million, up by 15.3% year-over-year. At the same time, its commission revenue grew by 20.4% year-over-year to $266.2 million, while diluted earnings per share rose by 29.4% year-over-year to $2.55. In the meantime, MarketAxees trades at a whopping forward price-to-earnings multiple of 32.16, which is substantially above the average ratio of 10.0 for the Investment Banking and Brokerage industry. The current valuation seems to be too high at the moment in spite of the record financial results. A total of 15 hedge funds from our system had stakes in the company at the end of the third quarter, accumulating a mere 3% of its total outstanding shares. James Parsons’ Junto Capital Management acquired a 223,505-share stake in MarketAxess Holdings Inc. (NASDAQ:MKTX) during the third quarter.