by Ethan Roberts | March 28, 2012 10:07 am
A recent insider sale at Green Mountain Coffee Roasters (NASDAQ:GMCR) is leaving a bitter taste in the mouths of shareholders.
Founder and Chairman Robert P. Stiller sold $66.3 million worth of company stock in February — only a few short weeks before the stock plunged from nearly $70 to $50 in only six trading days, according to Bloomberg.
A question — which might well be asked by the Securities & Exchange Commission — is why, exactly, did he sell? Was it because Stiller had inside information that Starbucks (NASDAQ:SBUX) was about to launch Versimo, a single-serve coffee-and-espresso machine for home use that would provide stiff competition for Green Mountain’s own K-Cup single-serve unit?
Stiller sold 500,000 shares on Feb. 15 at $65.94 and another 500,000 shares on Feb. 24 at $66.68 per share. And he wasn’t the only one — company directors William D. Davis and Jules A. Del Vecchio sold a total of close to $5 million worth of stock during the last week of February.
You can see from the chart below that GMCR lost over 28% of its value on heavy volume from March 5 to March 12, both right before and immediately after the Starbucks announcement.
Click to Enlarge
(Chart courtesy of stockcharts.com.)
As I have noted here previously, when one insider sells shares of stock, it doesn’t always mean the stock is poised for a fall. That insider may need money for some personal use. It’s also a recent trend for companies to pay lower salaries to executives while giving them more shares of stock at reduced prices. So we sometimes see insiders sell shares simply to increase their annual income.
However, when several insiders are selling around the same time period, or when there’s large-scale selling going on, as was the case here, it behooves investors to take note. Green Mountain’s price tumble is a perfect lesson for us.
What was also interesting about Shiller’s sale was that it was his largest monthly sale total since way back in 2003 — almost 10 years ago. There’s no doubt Green Mountain had advance notice from Starbucks that it was about to introduce this product. Starbucks has already admitted that but is mysteriously not providing any further details.
On March 9, Green Mountain Coffee released a statement in a regulatory filing that said: “We recently learned of Starbucks’ planned initiative in the espresso-based single-cup category. However, we were not made aware of any additional capabilities.”
It’s not our role as investors to judge whether anything illegal or immoral has occurred in cases like this. The SEC is charged with investigating these kinds of transactions and making any such determination. As investors, we simply want to follow insider transactions on the stocks we own to ensure that we don’t get burned. We can also profit from monitoring and then acting on insider transactions of stocks we don’t yet own.
When considering the purchase of a stock, you can track insider buys and sales at financial websites such as Yahoo.com. You can also create news alerts for your stocks at Google so that when large insider sales occur, you can take action, such as selling your shares, buying puts for protection, or simply tightening your stops.
I will also continue to alert readers of InvestorPlace.com to notable insider transactions of well-known stocks as they occur. We want our jolts to come from our morning coffee, not from watching the price of our stocks being roasted!
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