Insider trading watchers could easily notice that the insider selling activity has been intensifying over the past several weeks. In fact, statistics reveal that insiders have been cashing out holdings at a rate not seen since 2011. The daily average volume of insider selling in November stands at approximately $450 million, which marks the highest pace since May 2011. So what can we make of this high volume of insider selling? Of course, this figure can suggest that the strength and longevity of the recent stock market rally is weaker than one may expect. However, only time will show whether the recent heavy insider selling activity will be followed by a pullback or another correction. Meanwhile, the Insider Monkey team identified three companies with strong insider trading activity on the sell side, so this article will discuss the recent performance of those companies in order to find out what might have propelled insiders to cash out.
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.
Let’s begin our discussion by investigating the insider selling activity at Heritage Insurance Holdings Inc. (NYSE:HRTG). Chief Operating Officer Ernesto J. Garateix unloaded 4,000 shares on Monday and 7,212 shares last week, at prices in the range of $23.05-to-$25.50, cutting his overall holdings to 154,243 shares. The property and casualty insurance holding company recently reported its financial results for the third quarter, posting net income of $16.8 million, which denotes an increase of 69% year-over-year. Heritage Insurance Holdings Inc. (NYSE:HRTG)’s gross premiums written added up to $149.0 million for the quarter, up from $86.8 million reported for the same quarter of last year.
This strong financial performance seems to be reflected in the company’s stock performance, as its shares have gained 28% since the beginning of September and are up by 17% for the year. Even so, the stock is trading at a very cheap trailing price-to-earnings ratio of 7.63, which is significantly below the 23.12 average for the S&P 500 companies. Therefore, it is highly unlikely that the COO fears gloomy prospects at the company if considering its cheap valuation. 13 hedge funds monitored by Insider Monkey were invested in the company at the end of the third quarter, and they owned 14.40% of its outstanding common stock in aggregate. Ken Griffin’s Citadel Advisors LLC upped its stake in Heritage Insurance Holdings Inc. (NYSE:HRTG) by approximately 378,000 shares during the September quarter to 1.14 million shares.
Moving on to the next company examined in this article, RingCentral Inc. (NYSE:RNG) has witnessed strong insider selling activity in the past few weeks. Senior Vice President of Strategy Praful Shah discarded exactly 50,000 shares last week at prices between $22.41 and $22.94 per share, 10,000 shares of which were held by a trust fund for the benefit of the executive’s children. After the recent transactions, the executive holds a direct ownership stake of 350,595 shares, while the aforementioned trust fund currently owns 25,239 shares. There were other executives who sold shares last week, but they only cashed out freshly-exercised stock options, which we do not report on.
The provider of software-as-a-service solutions for business communications has experienced significant growth over the past several years, as the company registered total revenue of $114.5 million in 2012, $160.5 million in 2013, and $219.9 million in 2014. RingCentral mainly generates revenue by selling subscriptions to five product offerings, and the company has poured substantial cash into its research and development activities and operations, so as to grow its customer base and innovate new offerings. Meanwhile, the stock is nearly 52% in the green year-to-date and is trading at an all-time high of nearly $23, which could indicate why the insider has chosen to sell shares. The number of hedge funds with stakes in the company climbed to 29 from 22 during the third quarter, while Bain Capital’s Brookside Capital was the top shareholder of RingCentral Inc. (NYSE:RNG) within our database on September 30, holding 2.32 million shares.
Lastly, RSP Permian Inc. (NYSE:RSPP) also registered heavy insider selling activity last week. Erik B. Daugbjerg, who serves as Vice President of Business Development and Oil and Gas Marketing, sold a 20,000-share block on Thursday at a sale price of $28.83 per share, trimming his stake to 195,603 shares. The independent oil and natural gas company has seen its shares gain nearly 15% in 2015. Just recently, RSP Permian announced the completion of its previously-announced acquisition of underdeveloped acreage and oil and gas producing properties in the Midland Basin for roughly $137 million. In the meantime, its average daily production rate in the third quarter was 24,000 barrels of oil equivalent per day, up by 114% from the average daily production registered in the same period of last year. The company has been successfully hedging the risks associates with the volatility in commodity prices, mainly through collars, swaps and puts. This has surely assisted the company in tackling the low-oil-price environment.
20 smart money investors monitored by our team owned stakes in the company on September 30, amassing 11.20% of its outstanding common stock. John Labanowski’s Brenham Capital Management owns exactly 3.00 million shares of RSP Permian Inc. (NYSE:RSPP) as of the end of September.