When Amazon (NASDAQ:AMZN) CEO Jeff Bezos does just about anything, it’s a major news item. After all, he’s one of the richest people on the planet. And when Bezos buys or sells AMZN stock shares, people pay attention.
It’s also a matter of public record when a corporate insider such as Bezos buys or sells large amounts of his own company’s stock. It’s a smart idea for insiders to keep tabs on this activity. Sometimes it’s a genuine cause for concern when an insider unloads a large quantity of his or her company’s stock shares.
When Bezos recently sold some of his AMZN stock shares, the sale amount totaled billions of dollars. As you might expect, this event was all over the news and caught investors’ attention.
Social-media commentators were buzzing with theories, some of them rather far-fetched.
All it took was a bit of fact-checking to debunk some of the more outlandish theories. As it turns out, the reason for Bezos’ stock-share dumping isn’t so worrisome, after all. Moreover, there’s no glaring problem with Amazon that should prompt investors to sell their own shares now.
A Closer Look at AMZN Stock
Some people wouldn’t believe that AMZN was once a $1.50 stock, but it’s true. That was many years ago, and today the stock is a $3,000+ behemoth.
Whether the share price should be that high is a matter of contention among some financial commentators. The trailing 12-month price-to-earnings ratio for AMZN stock is a lofty 121.65.
Seasoned market participants will recall the bursting of the dot-com bubble in 2000. That’s when many technology stocks, some of which had triple-digit P/E ratios, sold off sharply. Will history repeat itself in 2020?
We have to bear in mind that in the year 2000, some of the tech stocks with high P/E ratios represented companies that weren’t generating strong revenues. Amazon, in contrast, is a massively lucrative enterprise.
Therefore, AMZN stock’s high valuation could be justified as the company is among the most famous and valuable businesses in the world. So now, we should take a closer look at what Amazon’s CEO recently did with some of his shares. Just as importantly, we should determine why he did what he did.
Bezos’ Selling Spree
You might have heard that in late July, Amazon issued a fantastic second-quarter earnings report. With $5.2 billion in net profits and 40% sales growth, it’s no exaggeration to say that Amazon really knocked it out of the park this time.
That’s all fine and good, but there’s another event that might have actually overshadowed Amazon’s blockbuster earnings report. I’m referring to the CEO’s sale of more than $3.1 billion worth of AMZN shares.
This is even more startling because the share sales took place over just two days. It’s also interesting because Bezos sold exactly 1 million AMZN shares. Moreover, Bezos sold more of his AMZN stock (in dollar terms) during those two days than he did in all of 2019, when he sold $2.8 billion worth of AMZN shares.
Not All Selling Is Bad
However, there’s really no cause for concern here. It’s true that sometimes CEOs sell their stock shares because a company is having problems. In Bezos’ case, however, there’s a less worrisome explanation.
Bezo’s recent sale $3.1 billion in AMZN stock was part of what’s known as a 10b5-1 plan. Sometimes corporate insiders will set up a plan to sell predetermined amounts of their stock shares on a regular basis through SEC Rule 10b5-1.
That way, they can cash out large quantities of their stock shares without being accused of violating insider-trading rules. Thus, not all selling should be viewed as a bad thing. Bezos was only following the rules and selling some of his AMZN shares in a predetermined, orderly manner.
The Bottom Line
Sometimes it’s a major issue when a corporate insider dumps a large chunk of his or her company’s stock shares. However, it really wasn’t such a big deal when Bezos sold some of his AMZN stock. It’s just business as usual, and Amazon’s still delivering tons of packages and generating astounding revenues.
As of this writing, David Moadel did not hold a position in any of the aforementioned securities.
