Slightly more than a decade ago, the U.S. Congress enacted the Sarbanes-Oxley Act of 2002 that mandated significant changes to reporting requirements. Following those changes, corporate insiders are required to report securities transactions with the SEC within two days following their trades, instead of 10 days stipulated under the old rules. This reporting requirement enables investors to use insider trading data in a more efficient manner, a piece of information that can help most types of investors throughout their stock selection and analysis process. Most insider trading experts say that insider buying serves as a very good signal to follow, but insider selling activity is much more complex. The increased usage of equity-based compensation has distorted the insider trading data and is it quite impossible to figure out the actual reasons behind each insider sale out there in the market. Even so, most insiders tend to operate as long term-oriented investors rather than traders by buying their company’s shares when they are undervalued and selling when they seem expensive (or approaching insiders’ estimates of “fair” valuation). Nonetheless, it would be advisable to interpret insider selling as a sign that companies approach their “fair” market value rather interpret that activity as a bearish signal. With that in mind, let’s discuss several noteworthy insider sales reported with the SEC on Friday.
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Palo Alto Networks Inc. (NYSE:PANW) has seen around seven corporate insiders unload shares in the past month or so, but some insider sales were either associated with freshly-exercised stock options or conducted under pre-arranged trading plans. Nonetheless, there were several noteworthy spur-of-the-moment insider sales that might be informative for the investment community. To start with, Director James J. Goetz discarded 23,643 shares on Wednesday at prices that ranged from $156.51 to $157.90 per share, trimming his ownership to 301,645 shares. Mr. Goetz also holds an indirect ownership stake of 14,614 shares, which is held by the Goetz Children’s Trust 4/24/1998. Carl M. Eschenbach, another member of the company’s Board of Directors, sold 1,780 shares on April 1 for $160.57 each, cutting his holding to 5,168 shares.
The cybersecurity company has seen its market capitalization decline by 16% since the beginning of 2016, so the recent insider selling does not necessarily serve as reason for optimism among investors. The shares of Palo Alto Networks have been weighted by the recently-held special Investor Track at the company’s Ignite 2016 cybersecurity conference in Las Vegas, during which attendees had the chance to receive up-to-date insights about the company’s market opportunity, business strategy, financials, among other things. Some analysts, including Andrew Nowinski of Piper Jaffray, believe that Palo Alto Networks Inc. (NYSE:PANW)’s guidance on operating margin slightly disappointed investors, while the costs associated with the construction of the company’s headquarters seem to be higher-than-expected. Even so, most financial hubs that cover the cybersecurity firm have issued ‘Buy’ ratings on the company. For instance, analysts at Nomura recently reiterated the ‘Buy’ rating on Palo Alto Networks, saying that they “continue to view Palo Alto Networks as one the best-positioned vendors in the overall IT Security market”. Nomura has a price target of $200 on the company, which yields an upside of 35%.
The hedge fund sentiment towards the cybersecurity firm increased mildly during the final quarter of 2015, as the number of funds with stakes in the company climbed to 50 from 47 quarter-on-quarter. Those 50 funds amassed nearly 8% of the company’s total number of outstanding shares on December 31. Jim Simons’ Renaissance Technologies reported ownership of 1.36 million shares in Palo Alto Networks Inc. (NYSE:PANW) through the round of 13Fs for the December quarter.