Every week when I get Barron's, I take a look at the insider transactions. I use it mostly for a barometer of market sentiment. Do these guys think their own shares are worth buying or unloading? I'm aware that there are many reasons they can sell their own stock, and it doesn't necessarily mean the stock is overvalued. But I look for trends. Large groups of insiders selling, or specifically different companies within the same sector seeing insider activity.
Well, one of the groups I've focused on in the past couple of weeks, casual chain restaurants, has seen some activity. Here are a few posts:
America's Hottest Sector: Casual Chain Restaurants. (via Fund My Mutual Fund)
Insider Selling Quite Strong.
Not So Fast, PF Chang's?
With my opinion that their latest batch of strong earnings will be tough to replicate, lets see what their insiders think. Here's the chart of this week's insider transactions. A couple of these companies have some sales:
Chipotle Mexican Grill (CMG) had 9 insiders selling 214,375 shares of stock for $17,742,000.
Yum Brands (fast food, but still a related industry) (YUM) had 5 insiders selling 227,551 shares of stock for $7,909,000.
Brinker Intl. (EAT) had 2 insiders selling 225,000 shares of stock for $4,371,000.
But this chart is only through April 27th. There were even more sales this week.
Todd Sullivan at Value Plays thinks its due to fear of tax hikes on capital gains. This is also a valid point, and there is probably some truth to it. But you can't argue with the fact that we've had a seven week stock rally, and they aren't waiting around; they are selling.
Again, it isn't a stand alone indicator. But when used with other methods of valuation and market strength, it can be useful. Especially when the insider buy vs. sell spikes one way or the other, like it has done recently. I'll continue to monitor this situation.
Disclosure: Author owns none of the stocks mentioned.