The Standard and Poor’s 500 gauge is finally trading in positive territory for 2016, after gaining approximately 12% since it reached its 2016 lows in mid-February. Given the recent rally, most investors would anticipate the volume of insider selling to keep increasing on a weekly basis, but that did not happen last week. The dollar volume of insider selling decreased quite meaningfully week-over-week, whereas the volume of insider buying more than doubled relative to the volume registered in the prior week. While it is evident why corporate insiders buy their companies’ shares, most investors and analysts believe that insider selling is not quite as informative, particularly considering the increased usage of stock-based compensation. It is true that this trend has distorted insider trading data, which makes it particularly hard to interpret insider selling activity. Nonetheless, one could interpret insider selling as a sign of fair valuation, which means that corporate insiders usually unload shares when their companies reach or approach a fair valuation. This interpretation mostly relates to the kind of insider selling that is not associated with freshly-vested stock options or pre-arranged trading plans, which we do not cover in our insider trading articles. The Insider Monkey team analyzed numerous Form 4 filings submitted with the SEC last week and pinpointed three companies with insider selling of the notable variety.
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Activision Blizzard Inc. (NASDAQ:ATVI) has seen increased insider selling activity over the past several months, which may be worrisome for investors intending to hold onto their positions in the company for a longer period of time. Eric Hirshberg, Chief Executive Officer of Activision Publishing (a subsidiary of Activision Blizzard and one of its main operating units), engaged in a number of transactions in recent weeks that may be interesting and informative for the general public. 240,000 performance-vesting restricted shares owned by the CEO of Activision Publishing vested on March 10, of which 120,852 shares were withheld to satisfy tax withholding obligations. The remaining shares were transferred to the Eric and Tara Hirshberg Revocable Trust, which had 287,847 shares following this transaction. Mr. Hirshberg sold 168,699 shares held by the trust fund last Monday at a weighted average price of $32.39, trimming the trust’s ownership to 119,148 shares. According to a separate Form 4 filing, the top executive sold the remaining 119,148 shares on the following day at prices that ranged from $32.36 to $32.51 per share. Mr. Hirshberg continues to hold a direct ownership stake of 221,163 shares.
Shares of Activision Blizzard Inc. (NASDAQ:ATVI), a developer and publisher of PC games, video games, and mobile games, have enjoyed a 193% run in the past five years, so the recent wave of insider selling at the company is not necessarily surprising. The world’s largest interactive gaming company generated total revenue of $4.66 billion in 2015, up from $4.41 billion in 2014. It should be noted that the company’s product sales, which include the sale of physical products and digital downloads, have been on a decline in recent years. However, this decline has been more than offset by higher subscription, licensing, and other revenue. Just recently, analysts at Barclays increased their price target on Activision Blizzard to $35 from $32 and reiterated their ‘Overweight’ rating on the stock, suggesting that an anticipated decline in physical sales will most likely be offset by digital revenue growth due to “significantly improved player engagement”. Barclays’ analysts believe that Activision Blizzard will enjoy higher margins from the ongoing digital transition. Cloud streaming and virtual reality are believed to represent new market opportunities for video game companies as well, including Activision Blizzard. Meanwhile, the stock is priced at around 15.5-times expected earnings, versus the forward P/E multiple of 18.2 for Electronic Arts Inc. (NASDAQ:EA) and the ratio of 17.4 for Take-Two Interactive Software Inc. (NASDAQ:TTWO). Stephen Mandel’s Lone Pine Capital upped its stake in Activision Blizzard Inc. (NASDAQ:ATVI) by 22% in the December quarter, to 11.27 million shares.