Should Investors Worry About the Voluminous Insider Selling at These Companies?

The Chicago Board Options Exchange’s Volatility Index, known as the VIX, has been on a steady increase since the beginning of the current week, which might be worrisome for investors and other stock market participants. The increased volatility might have also caused some companies’ insiders to cash out their equity holdings. As a general rule, insider selling activity is perceived as a bearish signal, as this type of activity generally shows that insiders are not expecting noteworthy gains for the stock in the near-time, or they would like hold on to their positions, barring an emergency. However, this line of thinking is not always astute, given the increasing usage of share option grants as employee compensation. As a result, insiders might sell shares simply to collect income and not because of their thoughts on the stock. Nonetheless, heavy insider selling can still be a cause of concern and should be considered as part of the investment decision-making process. To help with that, the Insider Monkey team identified three companies that registered noteworthy insider sales recently, and this article will closely examine these trades.

Prior to discussing the insider trading activity, let’s make you familiar with what Insider Monkey does besides providing high-quality articles. At Insider Monkey, we track hedge funds’ moves in order to identify actionable patterns and profit from them. Our research has shown that hedge funds’ large-cap stock picks historically underperformed the S&P 500 Total Return Index by an average of seven basis points per month between 1999 and 2012. On the other hand, the 15 most popular small-cap stocks among hedge funds outperformed the S&P 500 Index by an average of 95 basis points per month (read more details here). Since the official launch of our small-cap strategy in August 2012, it has performed just as predicted, returning 102% and beating the market by more than 53 percentage points. We believe the data is clear: investors will be better off by focusing on small-cap stocks utilizing hedge fund expertise (while avoiding their high fees at the same time) rather than large-cap stocks.

The insider selling activity at Kroger Co (NYSE:KR) has been very high over the past several days, but we will discuss only the insider sales that were not made in connection with the exercise of stock options. Senior Vice President and Chief Financial Officer J. Michael Schlotman sold 46,857 shares at a weighted average price of $39.77 and offered 10,000 shares as a bona-fide gift on Friday. After these recent moves, the CFO currently holds a stake of 367,991 shares. Executive Vice President and Chief Information Officer Christopher T. Hjelm sold 13,545 shares on the same day, at prices in the range of $40.48-to-$40.55 per share, 1,545 shares of which represent a payment of tax liability associated with restricted stock. Following the aforementioned transactions, the CIO owns 232,459 shares.

The grocery chain has experienced massive growth over the past several years, with its shares having advanced by 27% in 2015 and by 103% over the past two years. Earlier this month, Kroger Co (NYSE:KR) released a strong third-quarter earnings report, which pushed the company’s run of delivering positive same-store sales growth, excluding fuel, to 48 straight quarters. Kroger also raised its net earnings per diluted share guidance for the full 2015 fiscal year to a range of $2.02-to-$2.04 from $1.92-to-$1.98. One could also argue that the stock has more room to run if bearing in mind that its trailing price-to-earnings ratio of 20.50 is still below the 22.71 figure for the S&P 500 Index. Cliff Asness’ AQR Capital Management reported owning 6.71 million shares of Kroger Co (NYSE:KR) through its 13F filing for the September quarter.

The second page of this daily insider trading article reveals the insider sales registered at Sohu.com Inc. (NASDAQ:SOHU) and Raymond James Financial Inc. (NYSE:RJF).

Sohu.com Inc. (NASDAQ:SOHU) has also registered a high volume of insider selling this week. Director Edward B. Roberts reported selling 42,645 shares on Monday and Tuesday, at prices of between $49.53 and $50.09 per share, all of which were held through two separate trust funds. After these transactions, these two trust funds aggregately hold 223,514 shares of Sohu.com. The Director also holds a direct ownership stake comprised of 24,088 shares.

The Chinese online media, search and game services company has seen its shares decline by 7% this year, so the aforementioned insider sale may serve as cause for concern, considering the disappointing performance. The company’s total revenue for the first three quarters of 2015 totaled $1.47 billion, up from $1.20 billion reported for the same period of last year. At the same time, Sohu.com’s diluted net loss per share tightened considerably, to $0.52 from $3.91 reported for the same nine-month period of last year. However, the company’s brand advertising business was impacted by the softening Chinese economy in the third quarter, as traditional brand advertisers cut their marketing budgets. The strengthening U.S dollar against the RMB also impacted Sohu.com’s financial results. The number of smart money investors from our database with positions in the company declined to 17 from 23 during the third quarter. William B. Gray’s Orbis Investment Management upped its position in Sohu.com Inc. (NASDAQ:SOHU) by 4% during the July-to-September period, to 6.91 million shares.

Raymond James Financial Inc. (NYSE:RJF) is another company that witnessed a sizable insider sale in the past several days. Executive Chairman Thomas A. James reported selling 130,498 shares on Friday and then another 18,141 shares on Monday, at prices in the range of $59.25-to-$59.69 per share, trimming his overall holdings to 13.37 million shares. The Executive Chairman also holds an indirect ownership stake of 1.33 million shares via a trust fund called the Robert A. James Trust.

The shares of the financial services and bank holding company have gained approximately 1% since the beginning of the year despite experiencing a significant pullback in mid-August. The financial performance of the company is strongly correlated to the direction of the U.S equity and fixed income markets, and the strength of the corporate and mortgage lending markets. This might explain the strong growth delivered by Raymond James over the past several years. The company reported net revenue of $5.2 billion for fiscal year 2015, an increase of 7% year-over-year, marking the sixth-straight year with a record top-line figure for the company. Raymond James delivered net income of $502 million for fiscal year 2015, up by $22 million compared to fiscal year 2014. Ken Fisher’s Fisher Asset Management cut its holding of Raymond James Financial Inc. (NYSE:RJF) shares by 3% during the latest quarter, to 1.57 million shares.

Disclosure: None