Insiders are selling into the rallies on some widely held stocks, posing a potential headwind for the market. The caveat for investors and short-sellers alike is that this activity is far from bearish. While insider selling can signify impending doom, particularly when ramping up, that is not the case with these names. Stocks like Zscaler Inc. (NASDAQ: ZS), O'Reilly Automotive Inc. (NYSE: ORLY), Gartner Inc. (NYSE: IT) and Braze Inc. (NASDAQ: BRZE) are in sustained uptrends driven by growth, outperformance, AI and profits and increasing shareholder value.
Zscaler is the most sold stock in December
Zscaler is the most sold stock in December, with 10 insiders selling and some making more than one transaction. However, the stock is up more than 200% since hitting its low earlier this year, providing ample incentive to take some cash off the table.
Because the company actively uses share-based compensation, transactions are spread among insiders and not bunched together on the calendar. It is an unlikely sign of business failure. Insiders and major shareholders own about 20% of Zscaler, and institutions own another 40%.
Zscaler's business continues to outperform expectations. Its easy-to-use platform makes it easy for companies to move into the cloud and take full advantage of its opportunity. The operations are enhanced by AI, offering AI to clients, and resonates with analysts. The analysts rate the stock a Moderate Buy and have been boosting price targets all year. The consensus lags the market and may weigh on the action ahead of the next earnings release, but the high-end range suggests another 10% to 20% upside.
O'Reilly insiders and institutions take profits
O'Reilly Automotive's insider and institutional activity caused the market to top in 2023, but it has since consolidated the activity and moved to a new high. The nine insiders selling made a single transaction each, with total activity diminishing throughout the quarter. They own less than 2% of the shares, posing little threat to the market. The institutions own close to 83% and are a more pressing concern. They've sold on balance for two consecutive quarters and may cap the market at its new highs if the selling persists.
Organic and acquisitional growth, cash flow and share repurchases supports O'Reilly Automotive's market action. The company's repurchases reduced the count by 4.25% as of the FQ3 report, and the allotment was increased by $2 billion shortly after its release. The $2 billion is worth another 3.5% of the market cap, with shares trading near $965.
Gartner insiders sell at record highs
Some of Gartner's nine insiders made more than one transaction over the last quarter but did little to halt the uptrend in price action. The market for this stock is trending strongly higher on outperformance and raised guidance and is showing a bullish signal now. The price action suggests a bullish continuation that could take the stock price up another $100 before it runs its course.
Braze is the most actively sold insider stock
Braze is the most actively sold stock by insiders, with each of its eight selling at least twice during the period. Sales are broad, including the CEO, directors, CFO, and legal counsel, but leave total ownership near 25%. Because institutions also sell on balance, the combined activity could keep the tech stock from advancing. However, the market is completing a reversal driven by outperformance and improving guidance, so it may easily absorb the selling.
Analysts see BRZE trading about 20% higher at the consensus estimate, rating it a Moderate Buy. The $63.65 consensus target puts the market at a multi-year high, just below the next significant resistance target. The Q4 release in March 2024 may surpass that price point. The analysts are raising their estimates, but the consensus is still flat compared to the previous quarter and grossly underestimates the company's momentum.
