In previous years, the design automation software industry--companies that make software tools that helps engineers design products or other materials--has historically experienced high levels of insider selling, along with the rest of the software industry.
Insider selling is commonplace within the technology sector, as executive compensation often includes the right to stock options or other equity bonus packages.
Over the past three months, the dollar value of shares sold by software industry insiders totals $1.5 billion--whereas the dollar value of shares bought is only $14.3 million. This activity translates to approximately $104 sold for every $1 bought.
Yet lately, insider selling has stalled among a group of companies that focus on design automation software. Several big-name companies have shown little, if any, selling within the last year.
Autodesk, one of the largest companies in this group, has shown very little insider selling this year, with only 10,985 shares sold to date. The reason behind this selling freeze? Insiders could be waiting for a rebound in stock price, following disappointing second-quarter earnings. Autodesk earned a penny per share in the quarter, compared to a profit of 49 cents per share in the year ago period.
Executives at Parametric Technology have not sold shares since May. Meanwhile, insider activity at Avanti has been at a standstill since January. And firms like Cadence Design Systems and Mentor Graphics have seen increasing purchasing activity this summer.
This type of behavior--buying combined with low levels of selling--bodes well for the industry's prospects.
Insiders at Cadence, one of the largest companies in the sector, bought 100,000 shares toward the end of July. This marks the first purchasing activity at the company since June of 1997. President Shane Robison and chief executive Ray Bingham each purchased 50,000 shares.
As the stock continued to hover near its 52-week low of $9.31, insiders continued to buy more throughout August. The latest activity consists of five insiders purchasing 335,000 shares, most notable being director John Olsen, who purchased 250,000 shares on August 25.
Yet following a stock upgrade by BancBoston Robertson Stephens, Cadence stock jumped more than $13 on August 31.
On September 9, a judge barred an ongoing patent dispute claim from Cadence against a competitor, Avanti. Avanti's stock price surged more than $9 on the news to a 52-week high of $23.81. Yet despite the unfavorable ruling, shares of Cadence continued their advance. As a result, Robison and Bingham grabbed a 30 percent return on their purchases in less than 60 days.
Insiders at Mentor Graphics, another Cadence competitor, have also been buying shares.
Two company executives purchased 14,000 shares in two days--executive vice president Gregory Hinckley scooped up 4,000 shares on August 6, and chief executive Walden Rhines bought 10,000 shares the day before.
The buys occurred almost immediately after the company reported second-quarter earnings that fell short of analysts' expectations, causing a 17 percent decline in the stock's price.