Should The Insider Selling At These Companies Give Cause For Concern?

The third quarter earnings season is just about to kick off and many tend to believe that the market will experience an “earnings recession”, a term that implies two straight quarters with earnings declines. In fact, the estimated third-quarter S&P 500 earnings decline is 3.9%, according to Thomson Reuters data. The weak oil prices, the relatively strong U.S dollar, and the flagging global demand stand behind the anticipated decline, which will put even more downward pressure on U.S equities. The Standard and Poor’s 500 Index has dropped by 8.57% from its all-time high registered on May 21, and the third quarter earnings season might lead to a further widening of this loss. In the meantime, some companies’ insiders have been aggressively unloading their stakes lately, which could suggest that the future outlook of their companies looks very grim at the moment. This article will be discussing the insider selling activity at Cantel Medical Corp. (NYSE:CMN), NV5 Holdings Inc. (NASDAQ:NVEE), and Korn/Ferry International (NYSE:KFY). Given that insider selling may be unrelated to companies’ prospects, we will attempt to decipher the reasoning behind each insider’s move.

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To begin with, Cantel Medical Corp. (NYSE:CMN) had two insiders sell stock over the past month or so. Director Mark N. Diker reported selling 10,000 shares last week at prices ranging from $56.48 to $56.90. After the recent sale, the director currently owns 448,771 shares, along with indirect ownership of 45,624 shares. Similarly, the Chairman of Cantel Medical’s Board of Directors, Charles M. Diker, unloaded 27,415 shares last week at prices in the range of $55.35 to $57.00, trimming his stake to 3.21 million shares. Just a few days ago, Candel Medical reported its financial results for its fiscal fourth quarter and full fiscal year 2015 that ended July 31, delivering record sales of $565.00 million in 2015. This marked a sales increase of 16% year-over-year. At the same time, the company’s GAAP net income for the year came to $47.95 million or $1.15 per diluted share, compared to $43.27 million or $1.04 reported a year ago. Let’s not forget to mention that the shares of Cantel Medical have advanced by over 21% year-to-date, so it is hard to stipulate why these insiders cut down on their holdings. Mario Gabelli’s GAMCO Investors is among the largest shareholders of Cantel Medical Corp. (NYSE:CMN) within our database, holding slightly more than 309,000 shares.

Moving on to the next potential underperformer, NV5 Holdings Inc. (NASDAQ:NVEE)’s Executive Vice President, Donald C. Alford, offloaded 20,000 shares last week at prices between $18.10 and $18.22. Following the recent sales, the executive holds a 48,543-share position. NV5’s shares have greatly outperformed the broader market in 2015, delivering a year-to-date return of over 46%. However, the recent market selloffs have impacted the company’s stock performance as well, which could hint that the insider is fearing more volatility and a potential pullback in the months ahead. The provider of professional and technical engineering and consulting solutions delivered a very strong financial performance in the second quarter, posting gross revenues of $34.5 million, which were up by 18% year-over-year. The company’s net income increased by 64% year-over-year to $1.7 million. The third quarter earnings report of NV5 Holdings will surely shed some further light on the direction of the company, but the insider selling activity might be taken as a bearish sign for the time being. Royce & Associates, founded by Chuck Royce, owns 3.49% of NV5 Holdings Inc. (NASDAQ:NVEE)’s outstanding common stock as of June 30, representing nearly 275,000 shares.

Last but not least, we will look into the insider trading activity at Korn/Ferry International (NYSE:KFY). Director Harry L. You sold 4,000 shares last Friday in multiple transactions at a weighted average price of $32.48. After the moves, the Director holds 13,400 shares. The stock of the international recruitment company has had a great run in 2015, advancing by more than 15% year-to-date. A few weeks ago, Korn Ferry announced its agreement to acquire the HR consultancy firm Hay Group for approximately $452 million. The freshly-announced combination is set to generate cost synergies of $20 million over the next year by increasing its use of technology and by divesting some assets. At the same time, the combined entity intends to reach an EBITDA margin in the range of 14%-to-18%. With this in mind, it appears that there are no firm-specific reasons that might have caused the Director to sell stock, but there is still huge room for speculation (e.g. further correction). Israel Englander’s Millennium Management disclosed owning almost 476,000 shares of Korn/Ferry International (NYSE:KFY) as of June 30.

Disclosure: None