If you’re an investor who owns shares in ContextLogic Inc. (WISH), you should pay attention to what the insiders are doing with their shares. Every month, the number of insider sell transactions in WISH increases. There isn’t even one buy transaction made between the insiders transactions. Is it possible that the insiders know something about WISH that we don’t?
WISH went public on December 16, 2020 at $22.75 per share, below its IPO pricing of $24 per share. The stock has lost some $8.5 billion in market value since its debut, and is now trading at around $4.00 per share, a plunge of more than 80 percent. This is a pretty steep decline for a company that was valued at over $11 billion when it went public last year. The company is struggling to become profitable. WISH has been losing money for years and is trying to turn around the company. What makes this situation so interesting is that WISH drop in share price have been accelerated by insider sales. Is there something fishy going on?
|Nov 22-24, 2021||Hans Tung||500,000||$2,009,666|
|Nov 17, 2021||Devang Shah||94,940||$464,038|
|Nov 17, 2021||Tarun Kumar Jain||67,605||$330,426|
|Nov 17, 2021||Piotr Szulczewski||77,290||$377,770|
|Nov 17, 2021||Hamid Reza Kassaei||58,145||$284,189|
|Nov 17, 2021||Just Brett||23,252||$113,646|
|Nov 17, 2021||Pai Liu||87,949||$429,868|
Insiders are selling. These transactions are just a few examples. They sold this month also on November 15 and November 12. They consistently sell shares every month. Source: SEC Filings
Management doesn’t trust the future performance
Insider selling is a bad sign. It means that management doesn’t trust the company’s future performance. If management would believe that the company is making progress towards profitability, then they might decide to keep their current stake in the company rather than selling off their shares. It looks like the insiders are not confident in the company’s ability to turn things around. They want to cash out while they still can.
Not necessarily doomed
It’s important to note that insider selling does not necessarily imply that the company is doomed. It could also mean that management is worried about the company’s financial health and wants to raise capital by issuing new shares in the future. Raising capital will increase the company’s outstanding shares. New shares are usually priced below their current value.
People who know too much may become emotionally involved. They may be angry or sad. Or maybe they feel guilty about how badly the company is performing. When this happens, it’s easy for them to see only what’s wrong with the situation and not what’s right. After all, if things are going so poorly, why should anyone expect anything better? It can take a while for an insider to regain his or her perspective. But when will they be able to do that? If they continue selling their stock at current prices, it appears they don’t see any reason for change.
Insider selling is a red flag that investors need to watch closely. Insider selling is often a sign that the company is having trouble turning itself around. However, it could also mean that management plans on raising capital. In either case, it’s best to be careful. What is your view? Feel free to leave a comment below.
Disclaimer: this article is not intended to provide financial investment advice or recommendations. Please do your own research or consult your financial advisor.