Is American Express Company (AXP)’s Executive Selling Spree a Red Flag?

On the heels of its lackluster earnings release, American Express Company (NYSE:AXP)‘ stock has hit five-year highs. And while investors and analysts celebrate the company’s forward-thinking business plans and momentum, company executives have been purging their shares. Here’s what investors need to know about how to view insider transactions going forward.

Between Jan. 21 and Jan. 29, executives from American Express sold 357,758 shares through direct sales and options exercises for a total cash-out of $21.2 million. While AmEx executives may have sold a lot of shares, it doesn’t necessarily mean that they are trying to get out before the bottom falls out from under them. According to a company spokesperson, there are limited windows during the year when executives can buy or sell shares, such as after the release of earnings.

American Express Company (NYSE:AXP)Like most companies, American Express has rules for executives, with minimum ownership requirements. After the sales occurred, the sellers still met all of the company requirements. In fact, AmEx was one of the financial companies with decent insider ownership as of year end 2011.

Company % Insider Ownership*
Capital One Financial Corp. (NYSE:COF) 2.91%
American Express 1.31%
JPMorgan Chase & Co. (NYSE:JPM) 0.81%
Citigroup Inc. (NYSE:C) 0.19%
Bank of America Corp (NYSE:BAC) 0.07%

Source: Companies 2012 proxy statements and Yahoo! Finance; all percentages refer to ownership at year-end 2011.

All of the companies listed above had insider transactions throughout January, according to Yahoo! Finance, so the share sales from AmEx executives is not a one-off, troublesome event. It’s not uncommon for insiders to buy and sell shares throughout the year, so investors need to keep the transactions in perspective.

Money, money, money…
Here at the Fool, insider ownership is one of the key statistics used to evaluate a company. But while it’s an important factor, it’s not everything. Investors should look at insider ownership — and so, by degree — insider selling, with an eye toward context.

In the current era of executive compensation, a trend has developed in that more and more compensation is being “paid” in stock options and shares. Since this percentage of compensation can reach 60%, executives have to rely on the ability to sell those shares or execute options to get income. And with the company’s stock at five-year highs, now is an optimal time for executives to cash out for maximum benefit.

The importance of buying and selling
With that last detail in mind, investors should still be aware of the ownership movements for any company’s stock. But instead of focusing on the selling, consider monitoring the buying more. While an executive could sell their shares for any purpose (new car, house, college bills, etc.), those transactions don’t give much context to their underlying opinion of the business. Buying shares, on the other hand, generally has one driver: confidence in the business. If you see a great deal of insider buying, consider it a good sign that those who know the business best are sure that the stock will rise.

The article Is American Express’ Executive Selling Spree a Red Flag? originally appeared on Fool.com and is written by Jessica Alling.

Fool contributor Jessica Alling has no position in any stocks mentioned, but you can contact her here. The Motley Fool recommends American Express. The Motley Fool owns shares of Bank of America, Citigroup, and JPMorgan Chase (NYSE:JPM).

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

blog comments powered by Disqus
Insider Monkey Headlines
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months Click to see monthly returns in table format!

Lists

10 Self-Made Billionaires Who Came From Nothing

The 10 Most Expensive Cities to Live in North America

The 13 Most Expensive Headphones in the World to Represent

The Top 20 Wealthiest Soccer Teams in 2014

4 BuzzWorthy Cannabis Stocks And Some Smoking Derivative Plays

The 10 Healthiest Fast Food Chains in America to Dine At

The 5 Most Expensive Cat Food Brands You Can Spoil Your Kitty With

The 6 Best eCommerce Platforms for Small Businesses

The 10 Worst Mistakes an Entrepreneur Can Make

The 5 Most OP Characters in League of Legends to Carry Games and Crush Foes With

The 5 Best Foods to Eat Before Running that Will Help You Pound the Pavement

10 Glaring Plot Holes in The Walking Dead that a Zombie-Filled Bus Could Drive Through

The 5 Biggest Celebrity Stoners Who Love Their Reefer

The 10 Most Overrated Movies Of All Time by Out-of-Touch Critics

Top 6 Least Expensive Cruise Destinations For 2015 that Will Take You to Paradise

10 States with Lowest Substance Abuse Rates in America

The 14 Most Watched TV Finales Ever

The 10 Best Selling Role Playing Games of All Time for PC

10 Most Influential Papers In Economics

Top 8 Biggest Charities in the US

10 Worst Celebrity Career Moves Ever

Top 10 Best Paid Tennis Stars in the World

10 Cities with High Demand for Nurses

6 of the Worst Greeting Card Messages Ever Crafted

How to Make Money in ArcheAge and Build Your Empire

10 Foods To Eat To Lower Cholesterol Levels

The 10 Most Hated Television Characters of All Time

The 30 Worst Halloween Costume Ideas Ever Brought to Horrible Life

10 Vocational Skills in Demand Today with Jobs Waiting to be Filled

10 Best Places to Visit in Central and South America

The 10 Greatest Empires in History Which Nearly Conquered the World

The 6 Cheapest Boarding Schools In America 2015

5 Clear Reasons LoL is Better than DotA, Continues to Rule MOBAs

The Only 9 Teams with a Chance to Win the Super Bowl

The 15 Most Common Phobias in America that Induce Fits of Panic

Top 6 Least Expensive Tourist Destinations in 2014

Jim Goetz, Peter Fenton, Jim Breyer: Top 6 Venture Investors for 2014

Top 15 Billionaires in 2014

5 Pitfalls To Avoid When Buying a Franchise

Top 20 Medical Schools in the US – 2014 Rankings

4 Business Strategies that Turned Jamie Oliver into the World’s Richest Chef

6 Qualities That Make You A Good Team Player

10 High Paying Seasonal Jobs in America this Holiday Season

The 10 Busiest Shipping Lanes in the World

5 Most Valuable Brands in China

The 10 States with Highest Substance Abuse Rates Crippling Their Populace

The Top 10 Things to Do Before You Die That Will Echo for Eternity

The 10 Best Selling Items on Etsy

Top 10 Things to Do in Tokyo, the Greatest City in the World

10 Mistakes on Social Media that Can Harm You and Will Probably Get You Canned

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!