Their explanation for the sell down was that other shareholders wanted to buy more and needed Mr Kogan and Mr Shafer to sell some stock to achieve this outcome. This didn’t cut it either.
Mr Debney, who sold the lion’s share of his stake, said he needed the money to pay his tax bill.
Insider selling (as it is called) – although perfectly legal is a red flag to market.
It is easy to understand why. When people who best understand a company’s prospects sell even a small portion of shares, it sends a signal that the share price is toppy.
(Because who sells stock in a company if they think the price is going up.)
Savvy investors keep a very close watch on executive/director share sales – and many interpret it as a vote of no confidence or at best opportunistic.
In the case of Kogan its share price has been on a massive tear this year – up almost 85 per cent since January.
Kogan is a retailer – albeit a digital one – that has been successfully growing in a market where most of its bricks and mortar competitors are struggling.
Kogan has also been diversifying its earnings and branching out into a range of new services – the most recent of which is superannuation. And the market certainly appeared to appreciate its most recent financial result – revenue was up 6.4 per cent and pre-tax earnings grew 11.4 per cent.
The case of Kogan aside, research released last year by stockbroker Wilsons found that there was a correlation between insider sales and market underperformance.
Two of Australia’s largest insider sales are worth looking at in this context.
The first is James Packer’s sale of 19.9 per cent of Crown Casino at the end of May. Mr Packer may not be technically be classed as an insider because he was not on the board when the agreement to sell shares was made.
But given he was previously a director and (even after the sale is completed) remains the largest shareholder, he will be viewed as someone with a clear understanding of the business.
He agreed to sell his stock for $13 a share – a slight discount to the prevailing price.
Since then the share price has bounced around but is currently sitting much lower at $11.74.
Several factors have pushed the Crown share price around. An investigation undertaken by Nine Entertainment pointing to links between junket operators used by Crown and organised crime sent the casino group’s share price down. And it took another leg down when gaming regulators announced investigations into Crown operations.
More recently Crown released a disappointing earnings result – showing VIP turnover had fallen 26 per cent in the 2019 financial year.
There were clear signs of weakness in VIP revenue before Mr Packer sold down. In the half year earnings to December, which were reported in February VIP turnover was down 12 per cent.
Thus Crown’s share price fall since Mr Packer’s sell down fits neatly with correlation between market underperformance and insider selling.
The third example of insider selling comes from Treasury Wine Estate. Its chief executive Michael Clarke has sold stock three times over the past year – most recently in the days following the 2019 earninge result.
The market virtually ignored the share sale and instead concentrated on a positive earnings result that contained stronger than expected cash flows.
When Mr Clarke sold stock earlier this year the share price took a battering – as it coincided with a hedge fund suggesting the wine company had inflated its earnings.
Ultimately there is no easy way to cushion an insider’s move to sell stock.
Diversifying one’s investment portfolio is a reason that doesn’t seem to wash with investors.
Divorce seems like the best excuse.
Elizabeth Knight comments on companies, markets and the economy.