Shares of teen clothier American Eagle Outfitters (NYSE:AEO) are dropping today, falling 4.4% through 10:15 a.m. EDT -- but to find out why this is happening, you need to go back to what happened on Friday.
Specifically, you need to go back to Friday's report from SECform4.com, which noted that two days prior, on April 21, American Eagle's president, Charles Kessler, sold 41,859 shares of his company's stock -- 42% of all the stock he owned -- for about $1.5 million.
In fact, while Kessler's sale was the largest reported, SECform4.com notes that that same day, April 21, two other American Eagle insiders also sold sizable stakes in the company -- director David Sable sold 10,000 American Eagle shares, and company COO Michael Rempell sold 12,417 shares.
It's understandable that these sales might have spooked investors a bit, but here's the thing:
Here at The Motley Fool, we like to remind investors that there are all sorts of reasons why insiders -- why anyone -- might want to sell a stock. One might want to diversify their stock portfolio. Another might want to buy a boat. A third might need ready cash to pay taxes. ('Tis the season, after all.) Insider knowledge of upcoming bad news is only one potential reason, and you shouldn't jump to the conclusion that just because some insider is selling, you should follow along and sell, too.
And, I might add, especially not with a stock like American Eagle Outfitters, where the P/E ratio is a cheap 7.1 times earnings.