The conventional wisdom is that it is impossible to really determine the reason that insiders sell their stock in a company, but we may have a bit of a special situation with Monster Beverage Corp (NASDAQ:MNST) and Trulia Inc (NYSE:TRLA). The corporate insider could need to pay college tuition, or perhaps wants to buy a condo in Vail. Insiders face a strong incentive to diversify their wealth away from the company in which they hold stock or options in order to reduce their risk.
However, when insider selling is undertaken by multiple insiders who are liquidating large amounts of stock, investors should take note. In addition to using hedge fund filings to develop investing strategies that have beaten Mr. Market by double-digits, we also maintain a database of insider transactions to help investors decide if a company is worth a closer look. In this article, we will examine two companies with extremely heavy insider sales. 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.
Monster Beverage Corp (NASDAQ:MNST)
Other commentators across the web have noted the recent large insider sales at Monster Beverage Corp (NASDAQ:MNST). Monster manufactures and distributes alternative beverages, and it is most well known for its energy drinks. The Company has come under fire over the past six months, with some alleging that its energy drinks may have negative health consequences.
Heavy insider sales combined with the end of a share buyback program, as well as negative press, could bode poorly for Monster’s share price. Since the first of March, multiple insiders at Monster have sold over 1.26 million shares. In the last three months, there have been 15 insider sales, with only one insider purchase. In the last 12 months, insiders have sold 2.289 million shares, while only buying 50,600 shares.
CEO Rodney Sacks alone has sold over 573,000 shares in March, reducing his position in the Company by approximately 34%. Monster Beverage Corp (NASDAQ:MNST) currently has a share float of 141 million shares. When the officers are substantially reducing their holdings in a company, it may be a negative signal.
The Company is heavily shorted, with a short interest at the end of February of 4.89 million shares. The short float is 3.43%. The stock is very volatile, with a monthly volatility of 3.31%. This volatility highlights a significant risk of a short squeeze with the stock. Any even remotely positive news can send shorts scrambling to cover their positions, resulting in large intra-day moves up. The share price has taken a hit dropping 19.76% over the past year, and is down over 8% year to date.