Is Take-Two Interactive (Nasdaq: TTWO ) headed higher or lower? That's the question we ask when we evaluate insider buying and selling. We ask because the way executives spend their paychecks often reflects what they think of their companies' prospects.
Of course, not all buys are equal. According to two decades' worth of research from Dr. H. Nejat Seyhun, compiled in his book, Investment Intelligence from Insider Trading, buying is most predictive when it (a) comes from the CEO or other top-level executive, and (b) is performed in bulk. Seyhun found buys of between 10,000 and 100,000 shares to be most informative.
How do Take-Two's managers measure up against Seyhun's benchmarks over the past year? See for yourself:
||Bullish: Though past sales were at close to current prices, buying has far outpaced selling.
||A leading video game publisher whose core franchise is Grand Theft Auto.
|CAPS Stars (out of 5)
|Percentage of Shares Owned by Insiders
|Net Buying (Selling)*
|Last Buyer (% Increase)
||Carl Icahn, 10% owner
20,300 shares at $9.91 apiece on Sept. 27, 2010
(Added to direct holdings by less than 1%.)
|Last Seller (% Decrease)
||Seth Krauss, Executive VP and General Counsel
14,352 shares at $10.23 apiece on March 11, 2010
(Reduced direct holdings by 12%.)
||Activision Blizzard (Nasdaq: ATVI )
Electronic Arts (Nasdaq: ERTS )
Microsoft (Nasdaq: MSFT )
Sources: Form 4 Oracle, Capital IQ, a division of Standard & Poor's; and Motley Fool CAPS. (Data current as of Oct. 27.)
*Open market sales and purchases only.
What we're tracking here, and why
Insider buying data can be confusing. Here, I'm concentrating only on buying and selling conducted in the open market. With most of these transactions, insiders control the timing. Other times they're buying or selling under the purview of a 10b5-1 plan. Either way, personal holdings are being bought and sold.
Those personal holdings matter the most -- they're the shares executives hold for investment, rather than compensation. Employee stock options are different; they're compensatory in the purest sense. I've stripped out options-related buying and selling from the calculations you see above.
The Foolish view: Bullish
Do big investors' purchases matter? In Take-Two's case, the question's worth asking. Carl Icahn is largely responsible for $36 million in insider purchases of the stock over the past year.
Activist investor Icahn's other recent pursuits include Motorola (NYSE: MOT ) and Hain Celestial Group (Nasdaq: HAIN ) . With Take-Two, observers assume he'd help to broker a sale of the company to another video game publisher. (Two years ago, the company turned down a $26-per-share offer from EA.)
Today, Take-Two trades for less than half that, and just $858 million in market value. No way is that fair. Grand Theft Auto, Take-Two's signature franchise, generates hundreds of millions in sales with every new release. Between that, BioShock, and newly released hit Red Dead Redemption, Take-Two should command at least $1 billion in market value. Icahn's buying suggests he sees the same discount. So do most Fools.
"[Take-Two] has not made a profit when they don't release a Grand Theft Auto title, but with the recent success of the last few quarters and the big name releases of the next few, I see this stock going nowhere but up," wrote Foolish investor platinumatt last week.
Do you agree? Disagree? Log into Motley Fool CAPS today and tell us how you would rate Take-Two Interactive. You can also add the stock to your watchlist.
And if you want me to take a Foolish peek at the insider action of your favorite stock, email me here or use the comments box below. I'll write this column as often as you, our readers, demand.