In this article, we will examine two companies with recent large insider sales: Urban Outfitters, Inc. (NASDAQ:URBN) and Webster Financial Corporation (NYSE:WBS). Although we can only speculate as to the true motivation for the sales, investors can do more due diligence and determine whether there is a short sale opportunity, or just a large red flag to avoid a certain company’s stock.
Now, the conventional wisdom is that it is impossible to really determine the reason that insiders sell their stock in a company. The corporate insider could need to meet some unexpected obligations, such as taxes, and they also face a strong incentive to diversify their wealth away from a single equity investment. However, when multiple insiders are liquidating large amounts of their shares, retail investors should take note, for these very reasons here.
Urban Outfitters, Inc. (NASDAQ:URBN)
Urban Outfitters, Inc. (NASDAQ:URBN) is a retail clothing company that focuses on contemporary casual apparel for young men and young women. The Company operations various chains, including Urban Outfitters, Inc. (NASDAQ:URBN) and Anthropologie.
There have been some recent insider sales, with CEO Richard Hayne selling 1.508 Million shares in the Company according recent SEC Form 4 filings. Hayne still continues to hold over 19 millions shares. These sales come on the heels of Director Zausner Freeman’s move, in which he exercised some options while selling 100,000 shares. Absent any other information, these sales could be viewed as insiders merely diversifying their holdings. Still, there are some additional factors that may point to the Company potentially facing some headwinds in the near term future.
Urban Outfitters, Inc. (NASDAQ:URBN) did report positive revenue growth, with net Q4 sales increasing to $857 million, 17% more than the same quarter one year earlier. Net sales increased to $2.8 billion for the entire fiscal year, a boost of over 13% year-over-year. However, Urban Outfitters has a fairly high P/E ratio of 24.33. This is compared to a P/E ratio of 16.86 for competitor L Brands Inc (NYSE: LTD), and a P/E ratio of 11.11 for Express, Inc. (NYSE:EXPR). The smart money in general hasn’t exactly loved this space, as they’ve been dropping Express of late; see the details.
Further, it is unclear where sufficient future growth will come from…well, at least enough to justify the high-ish P/E ratio. Some hedge funds are betting on Urban Outfitters, as Steve Cohen and SAC Capital Advisors increased their position in the Company by 189% in Q4 of 2012; see the details of this fund here.