While it’s quite evident why it does make sense to track insider buying activity, retail investors find it difficult to recognize the usefulness of insider selling. The investment community may be overlooking the significance of insider selling on some occasions. Of course, directors and executives can sell their companies’ shares for a wide number of reasons, which explains investors’ reluctance to pay attention to this kind of activity. Nonetheless, there is some insider selling activity that should catch investors’ attention, which involves voluminous clusters of selling. When three or more corporate insiders unload their companies’ shares, the investment community may wish to sell those shares as well. Ideally, retail investors closely watching insider trading behavior would pair heavy insider selling with a solid bearish investment thesis, so insider trading metrics should definitely play a key role in investors’ stock analysis process. For that reason, the following article will lay out several noteworthy insider sales freshly recorded at three public companies.
Academic research has shown that certain insider purchases historically outperformed the market by an average of seven percentage points per year. This effect is more pronounced in small-cap stocks. Another exception is the small-cap stock picks of hedge funds. Our research has shown that imitating the 15 most popular small-cap stocks among hedge funds outperformed the market by nearly a percentage point per month between 1999 and 2012 (read more details here).
Align Technology Had Former President and CEO Unload Sizable Block of Shares This Week
To start with, Align Technology Inc. (NASDAQ:ALGN) had one of its Board members unload a sizable block of shares this week. Board member Thomas M. Prescott, who served as the President and Chief Executive Officer of Align Technology from March 2002 to June 2015, discarded 64,773 shares on Tuesday at prices varying from $74.01 to $74.66 per share, cutting his holding to 111,253 shares.
The shares of the orthodontic-device maker have advanced a whopping 912% in the past ten years and 26% in the past year alone, so it would make perfect sense for Mr. Prescott and other long-term employees at the company to diversify their holdings. In fact, Align Technology Inc. (NASDAQ:ALGN)’s shares are trading near their 52-week high of $75.74 reached last week, so any insider selling at the company would be justifiable. The company’s main pillar of growth relies on the Invisalign System, which provides an efficient approach for treating malocclusion (the misalignment of teeth) based on a custom-made series of plastic removable orthodontic aligners. Malocclusion is one of the most widespread clinical dental conditions, affecting almost one billion people. Considering that Align Technology plans to establish Invisalign clear aligners as the Nr. 1 method for treating malocclusion, there seems to be a massive market potential for the company. The company’s revenues have been growing at solid pace and are anticipated to keep doing so in the upcoming quarters. For instance, Align Technology’s first-quarter revenue grew 20.5% year-on-year to $238.7 million, while second-quarter revenues are anticipated to come in the range of $253.3 million to $258.3 million.
Although Align shares are changing hands at a hefty forward PE multiple of 27.2, which is significantly above the ratio of 18.0 for the Nasdaq 100 Index, the strong growth experienced by the company seems to justify the seemingly high valuation. Columbus Circle Investors, managed by Clifford G. Fox, upped its stake in Align Technology Inc. (NASDAQ:ALGN) by 34% during the March quarter to 1.16 million shares.