If top-level insiders are offloading company stock, it can pay to approach the stock with caution. Insider sales can be a sign that the company’s outlook is deteriorating, or that the stock is overvalued.
In this report, we are to highlight some bearish insider selling activity at Align Technology Inc (ALGN:US). Align Technology is a global medical device company that manufactures 3D digital scanners that are used in orthodontics. It is listed on the NASDAQ Global Select Market and currently has a market capitalization of $38 billion.
Align Technology: insider selling
Align Technology shares have had a strong run this year and what’s interesting is that a number of insiders have sold a large amount of stock recently. According to our records, more than 10 insiders have dumped stock since 26 October.
Source: 2iQ Research
Notable sales have included:
- A $36.6 million sale from President/CEO Joseph Hogan on 26 October
- A $1.8 million sale from CFO John Morici on 26 October
- An $11.0 million sale from CTO Zelko Relic on 4 November
Combined, insiders have sold around $75 million worth of stock in just a few weeks.
This cluster selling pattern looks bearish for a few reasons. Firstly, a wide range of insiders have sold stock including top-level insiders such as the CEO and CFO. This tells us there’s a consensus of opinion that the stock has limited upside.
Secondly, the insider sales are very large. Together, they represent the largest amount of insider selling at Align Technology within a quarter in several years.
Strong Q3 resultsAlign Technology shares popped higher in October after the company posted stronger-than-expected Q3 results. The results were certainly impressive. For the quarter, revenue was up 20.9% to $734 million, while net income came in at $178 million, compared to a net loss of $28 million last year.
However, after the recent share price rise, the stock now looks expensive. Currently, Align trades on a forward-looking P/E ratio of over 100 which is high when you consider that little revenue growth is expected for the full year.
The insider selling activity we have observed recently indicates that insiders view the stock as fully valued at present. Given the size of the insider sales, we see the selling activity as a bearish signal.