In an article published three months ago we highlighted Solazyme, a renewable energy company that creates tailored oils from algae. Since that article, the company filed 23 insider selling transactions that merit a closer look.
While insider selling is often viewed upon negatively by investors, there are legitimate reasons for such transactions. Senior management may look to sell for reasons of diversification, to supplement their income, of for the purpose of funding life events that may require additional capital. Insider transactions can be evaluated by size, frequency, breadth among senior management, and by looking at historical compensation trends.
Based on filings information taken from the Solazyme website, there have been 23 insider selling transactions since July 5 2013. The sellers include the CEO, CTO, COO, CFO, President, and various Directors for a total of just over 400,000 shares. At today’s share price this would represent a combined monetary value of around $4.3 million which is more than half of total executive compensation in 2012. The below chart shows the number of shares sold per week.
The above pattern shows a certain consistency to the transactions across time. Nearly half of the shares sold were by the CEO, though these sales were relatively insignificant compared to his holding of 2.7 million shares after the fact.
Executive compensation is a very heated topic where the advocates of high compensation argue that you must pay dearly to keep and retain competent senior leaders while those against high compensation claim that executive management should be rewarded in proportion to the value created for shareholders. Historical compensation for Solazyme executives can be seen in the below chart:
For the past three years, executive compensation has increased handsomely. Between the years 2011 and 2012, total executive compensation rose +36% with the CEO’s compensation increasing +48%. During that same time frame, the share price returned investors -33%. Investors who would have been on board since the first day of trading in May 2011 would have lost -47% of their investment to date.
Solazyme is a heavily debated stock right now on forums such as Seeking Alpha. Frequent insider selling by such a broad group of executives does not demonstrate a strong vote of confidence in the face of such debate. Critics of these insider transactions would argue that this was a group decision made by the executive team with the assumption that in the near term the stock price is not expected to appreciate much. Regardless of the signals these transactions send to the investment community, the next two quarterly earnings reports will speak a great deal about whether or not investors will realize the growth they are expecting.