This is obviously not the first time insiders have sold off big chunks of a stock. Last June, Target Corporation (NYSE:TGT) insiders sold off $13 million worth of shares in a two week period. That hasn’t been an indicator that anything was wrong with the company, though. The stock has increased another 8% since the sell-off, and there aren’t any signs pointing to a serious fall in Target’s business — January comparable sales were up 3% at the retailer.
If Target is on the good side of a scale, then Facebook Inc (NASDAQ:FB) might be on the not-good side. But even in that situation, where insiders sold around $775 million worth of shares since IPO, CEO Mark Zuckerberg has committed to holding on to all of his own shares until later this year. While that may just be a PR move, it shows how important it is for insiders to have a vested interest in a company’s stock.
The bottom line
There are a few important details to remember about this move from Kors insiders. First, the selling hasn’t happened yet, it’s just been set up. While Sportswear will likely sell its 20 million shares, Kors and Idol may decide to hold out for a while longer. Second, insider selling doesn’t necessarily indicate that something is wrong in the company, even in the Facebook example. With Kors we’re talking about real honest-to-goodness insiders, but in Facebook’s case, “insider” is a pretty broad term — almost everyone in the company was being paid in stock at some point, and selling a bit may have made up for years of underpay.
But we shouldn’t let Kors’ management off the hook, and the market is reflecting that. The stock is down 3% in the middle of the day on the news. Investors need to be able to trust that the people involved in a company are optimistic about the company’s actions, and selling off a meaningful percentage of the company’s stock reflects pessimism. At the end of the day, this is bad news for investors.
The article Michael Kors Insiders Poised for Sell-Off originally appeared on Fool.com and is written by Andrew Marder.
Fool contributor Andrew Marder has no position in any stocks mentioned. The Motley Fool recommends Coach and Facebook. The Motley Fool owns shares of Coach and Facebook.
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