One commonly-used gauge of a stock’s valuation is its Price / Earnings ratio. This metric is most useful when compared to those of its peer group operating in the same industry: if a stock’s P/E multiple is higher (lower) than peers, the stock is considered expensive (cheap) on a relative basis. All things being equal, a higher-than-peer P/E ratio implies market expectations for the company that are higher than the rest of its industry. However, this in and of itself is not a sell signal, since a company’s growth prospects can be higher than competitors due to a unique product / service, lower cost base, patent protection or other factors that confer some type of competitive advantage to the company. Combined with other red flags, however, an unusually elevated P/E multiple can be a sign that the stock could be due for a pullback. Here we will look at five stocks with high P/E ratios that have also experienced recent selling from insiders.
TIBCO Software Inc. (NASDAQ:TIBX) is a $3.2 billion market cap software company that provides infrastructure and business intelligence software worldwide. The stock trades at a P/E multiple of 39.7X, which is more than two times the industry average multiple of 16.6X. In addition, Philip Wood, a director of the company, sold 91,269 shares in three separate transactions in early April. Although he still holds 173,930 shares of the company, such a large sale is worth noting. Other notable insider sales transactions include 24,461 shares by EVP, General Counsel and Secretary William Hughes, 50,000 shares by director Peter Job and 681,000 shares by CEO Vivek Ranadive.
Hawaiian Holdings, Inc. (NASDAQ:HA) is a $700.9 million market cap company that operates Hawaiian Airlines, which offers air transportation of passengers and cargo between Hawaii and major cities in the U.S. mainland, Asia and Australia. The stock sports a P/E multiple of 13.6X versus 9.5X for its peer group. In late March, Bert Kobayashi, a director, sold 10,000 shares of the company in two transactions, leaving him with a 66,408 share stake. Other recent insider sales activity includes 10,000 shares by Secretary Hoyt Zia, 40,000 shares by SVP of Operations Charles Nardello and 100,000 shares by EVP and Chief Commercial Officer Peter Ingram.
LinkedIn Corporation (NYSE:LNKD) is a $21.0 billion market cap company that operates an online professional network. Its industry trades at a P/E ratio of 37.3X, which is high but looks tame compared to LinkedIn’s astronomical P/E of 769.2X. General Counsel and Secretary Erika Rottenberg sold 2,000 shares of the company in 11 separate transactions during April, leaving her holdings at 38,675 shares. Other insider sales include 6,250 shares by SVP of Engineering and Operations Kevin Scott, 72,917 shares by director Reid Hoffman and 32,375 shares by CEO Jeff Weiner.
Molson Coors Brewing Company (NYSE:TAP) is a $10.8 billion market cap company that manufactures and sells beer and other beverages. Relative to the 12.3X P/E multiple its peers trade at, Molson Coors’s 19.3X P/E is more than 50% higher. President and CEO Peter Swinburn sold 276,944 shares of the company in numerous transactions during 2014, retaining a 216,189 share stake. In addition, Mark Hunter, President and CEO of Molson Coors Europe, and Samuel Walker, Chief People and Legal Officer, sold 50,417 shares and 79,293 shares, respectively, during the year.
Interactive Brokers Group, Inc. (NASDAQ:IBKR) is a $1.2 billion market cap company that operates as an automated electronic broker and market maker. Its P/E multiple of 30.3X is double the 15.1X valuation of its peer group. Milan Galik, SVP of Software Development, sold a total of 59,500 shares on a regular basis throughout 2014, leaving his stake at 786,017 shares. Other notable insider sales transactions during the year include 143,860 shares by CFO Jonathan Brody and 259,113 shares by Vice Chairman Earl Nemser.
Disclosure: none
This article was written by Jason Seo of Insider Monkey.
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