Examining insider trading behavior should serve as a primary tool of fundamental security analysis, as investors need to know how insiders feel about their companies’ shares. Corporate insiders usually buy shares on the open market for one simple reason: the stock is cheap. On the other hand, insider selling appears to be much more cumbersome to interpret, considering that insiders can sell shares for a wide variety of reasons such as portfolio diversification, tax expenses, and estate planning, among other things. While not foolproof, past research proves that corporate insiders are pretty good at trading their companies’ securities, so it does pay off to keep track of insider trading activity. Moreover, research shows that companies witnessing insider selling tend to underperform companies with insider buying. Most insider trading experts recommend investors looking for clusters of insider selling, which may raise red flags on some occasions. Insider Monkey processed numerous Form 4 filings submitted with the SEC so far this week and identified three companies with notable insider selling.
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Capella Education Company (NASDAQ:CPLA) had one member of its Board offload shares in the past several trading sessions. Director Stephen G. Shank, Founder, Former Chairman and Retired Chief Executive Officer of the publicly-traded for-profit education company, sold out the entire stake of 16,850 shares held by the Shank Family 2013 Generation Skipping Trust on Friday and Monday at prices that ranged from $51.49 to $52.62 per share. Mr. Shank also reported the sale of 19,730 shares that occurred on Monday and 13,539 shares on Tuesday, all of which were held by the Judith F. Shank Revocable Trust that continues to own 43,101 shares. These two sizable blocks of shares were sold at prices varying from $51.04 to $52.48 per share. Mr. Shank also owns 77,392 shares through the Stephen G. Shank Revocable Trust and 73,900 shares through the Stephen G. Shank Sept. 2013 7-Yr Grantor Retained Annuity Trust.
Capella Education Company (NASDAQ:CPLA) is an online postsecondary education services company whose subsidiaries include: Capella University, which offers doctoral, master’s and bachelor’s programs mainly for working adults; Arden University, an independent provider of United Kingdom university distance learning qualifications; Sophia Learning LLC, a learning platform that supports self-paced learning; and Capella Learnings Solutions, which provides online non-degree, high-demand, job-ready skills, training solutions and services. The Minneapolis-based education company has seen its shares advance 10% since the beginning of 2016, which might serve as one reason behind Mr. Shank’s recent sales. Capella Education Company generated total revenues of $430.27 million in 2015, which represents an increase from $421.97 million in 2014 and $415.62 million in 2013. The increase in the company’s 2015 top-line figure was mainly driven by higher quarterly average total Capella University enrollments, average tuition price increases, and an increase in average courses per learner.
Earlier this year, the company announced intentions to divest Arden University and re-channel soon-to-be obtained resources from the divestiture to FlexPath and the non-degree market in the U.S., which are believed to generate a higher return for shareholders. Capella Education’s shares currently change hands at 13.8-times expected earnings, below the forward P/E ratio of 17.5 for the S&P 500 Index. A total of 15 hedge funds from our database had stakes in the education company at the end of 2015, accumulating 24% of its outstanding common stock. Jim Simons’ Renaissance Technologies reported ownership of 945,100 shares in Capella Education Company (NASDAQ:CPLA) through its 13F filing for the December quarter.