CWTR INSIDERS UNLOAD

From one of my readers:  [Edited for length.]

Hi, Phil:

I can't resist asking you something about what appears to be an absolutely wonderful company, except for one small thing that keeps bothering me. Coldwater Creek is a wonderful story of how Dennis Pence and his wife, Ann, started their business in their apartment in Idaho. After going through their life savings and Mr. Pence suffering a heart attack, the company went on to huge success.

The numbers all look terrific, but one thing keeps bothering me. The Pres., Georgia Shonk-Simmons and a couple of other executives all seem to be exercising stock options and selling all of them on the same day in late Sept. and early Oct., around $30/share.(current price $30.21). Earnings are out later in November. Is there anything necessarily insidious about selling all your options on the same day or is this a normal practice?

Thanks,

Phil Walker

My response:

So.  Phil Walker is concerned about a lot of insider selling at Coldwater Creek (CWTR). 

To find this information at Investools or MSN Money just click on Insider Trading. 

Over $60 million worth since January 06.  That is a huge wave of insider selling, isn't it? 

Well, it depends on who is doing it.  If it is Dennis Pence, the CEO, maybe not so big a deal.  He still has 32 million shares left worth about $1 billion total.  On the other hand, Dick Melvin, the CFO, is unloading too.  In his case, I can't figure out how many shares he has left.  He sold about 200,000 shares, but no matter what he sold he still had 50,000 shares left. 

Weird.  Seems like maybe they are forgetting to report options exercises.  Otherwise the numbers don't add up.  If that is what it is (and the way you find out is to call the investor relations 800 number and ask), that is not so significant.  If, on the other hand, the CFO is dumping most of what he has before an earnings announcement... well, that's why they made the rule that he has to report his sales, isn't it?

Bottom line, we don't invest in gray situations. If you like the business but can't get a clear answer about why the sell-offs, the you can't own the business.

Remember, you guys, Rule #1 investors buy stock just like we would buy the entire company.  Can you imagine going through with the purchase of the whole business with this little red flag unresolved?  Never happen.  Your attorney would make you stop the sale even if you didn't.

So either dig in and find out what's going on or bail and go find somewhere else to play!

And since so many of our readers are CTSH fans, how about you dig deeper and report back?

RELATED POSTS:

• Your Homework: Coldwater Creek
• How to Read a 10Q (using CWTR as an example)
• When Insider Selling Isn't a Bad Thing

Comments

[Chris Shuck]

This is to Phil and, well, Phil,

I too stumbled into CWTR and immediately thought that I had found a great one. But, like Phil, I found that there were some interesting things going on behind the scenes and decided just to sit and be patient for a bit.

However, I have found another that just seems too good to be true. Noble Corporation (NE) seems to have all the right things. It's growth compared to the rest of the oil industry is huge. They just signed new contracts with Shell and BP. Checking the companies website I found that they are actually trying to be environmentally savy, have won several saftey awards in the last few years and are continuing to expand despite lost time from Katrina.

I didn't really find any signs of bad internal movement like we saw with CWTR. Aside from what appear to be some regular 401k adjustments. What's holding me back is the all important ROE percentage and the EPS Growth. I'm having a real hard time figuring out how everything else can be so good and these two crucial numbers could be so flimsy. Otherwise, this looks poised and ready to trend up for a while. Being new to this I am at a loss. Any thoughts?

Thanks,
Chris