Blog > Editor's Pic > If Polycom (PLCM) just got upgraded to a buy, why have insiders been selling?
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If Polycom (PLCM) just got upgraded to a buy, why have insiders been selling?

Posted August 18, 2008

If the outlook is so bullish for Polycom (NASDAQ:PLCM) it warrants a $32 upside, how come the company’s insiders are selling their holdings between $21-27?

by J. Christoph Amberger

Baltimore — (TFN): DGS Investing — the fine art of looking for damn good stocks — not just requires a thorough technical analysis of a company within the wider field of its competitors. Part and parcel of this is a lose look at insider behavior. Are they confident enough in their company (or at least the forecasts of their accountants and PR people)? Or are the insiders selling off their holdings?

After being impressed by my German colleague Daniel Wilhelmi’s recommendation of video conferencing stock Polycom (NASDAQ:PLCM) to the German Taipan subscribers, I asked Smart Trading director Laura Cadden to take a look at the stock.

“Why are the insiders selling,” she asked after a quick look at the screens.

Good question indeed. (Why didn’t I think of it?) Why ARE insiders selling PLCM as fast as they can exercise their options? Since July, officers of the company have been liquidating positions between US$21 and $27 a share. Couldn’t possibly be that they all have orthodontist bills hitting at the same time?

Last Wednesday, PLCM’s competitor Tandberg confirmed it had received a takeover bid from an unidentified company. The news sent its stock price upward, as well as PLCM’s. As a consequence, Piper Jaffray raised its price target on from $29 to $32 and maintains a Buy rating.

Could the muscle behind the take-over offer be so bulging it threatens PLCM’s core business?

At this point, I’d be inclined to establish a short horizon of $21 for the stock. Since this would be a short trade — meaning you could potentially lose more than 100% of your principal (on the off-hand chance the stock suddenly doubles) — establish and observe a tight 20% trailing stop.

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