On May 25, seven key insiders of Charming Shoppes
After the sale, the top five insiders held only about 935,000 shares. These five executives accounted for 1.3 million of the 1.4 million shares sold -- they had just sold well over half of their holdings in the company.
If I were an investor or an employee (or both), I would be livid. Simply put, I believe senior management should eat its own cooking. If the executive team believes it is creating long-term value for the shareholders, at a minimum, it should be betting on itself.
The executive team at Charming Shoppes needs to read a copy of Berkshire Hathaway's
Management's rush to the exits does not seem to be driven by an extraordinary valuation relative to the company's peer group. The stock trades at a price-to-earnings ratio of 18, which is the same P/E as Yahoo!'s Retail Apparel Index. That index includes companies such as Gap
Recent operating results also do not raise any red flags. As Dave Marino-Nachison reported on May 20, five days before the executive selling, the company just came off a great first quarter and the stock has had a great run since 2003. In addition, the company recently reported strong sales growth in May.
Despite the lack of any clear warning signs to those of us outside the company, management doesn't seem optimistic about the future prospects of the stock, and it certainly has the best information available. My advice to any individual investor currently long Charming Shoppes: Think about following management's lead and quickly dumping those shares. More likely than not, those executives know something that you don't about what's looming on the horizon.
Fool contributor Salim Haji lives Denver, Colo. He owns shares in Berkshire Hathaway, but not in any of the other companies mentioned.