Analyst says insider selling a ‘red flag’

Thursday, May 9, 2002 | 11:07 a.m.

A gaming analyst said today that insider sales by gaming company executives stand at a six-year high, and said the trend was a "red flag" investors should be aware of before investing in gaming stocks.

Bear Stearns gaming analyst Jason Ader calculated a "sell/buy" ratio for insider activity in the gaming industry -- the amount of stock sold by executives, divided by how much stock they bought. In 2000 this ratio for the entire gaming industry stood at 0.1, meaning gaming executives purchased, in the aggregate, $10 in their own companies' stocks for every $1 they sold.

In 2001, however, the ratio hit 31 -- and stands at 214.6 so far in 2002. These are by far the highest ratios of the last six years in Ader's study. Insider selling was most intense among executives of large casino operating companies -- in this sector, the sell/buy ratio was 483 in 2000, and 251.2 so far in 2002.

It isn't surprising, given the historic highs gaming stocks have reached in the past several months, Ader wrote, and it shouldn't be a great concern to investors. But he warned that investors should keep the sales in mind before investing.

"Management of gaming companies have been pretty good traders of their own stocks," Ader said. "Business is still strong, and we feel the second quarter will be extremely strong. The point is that investors looking to take aggressive positions at current levels may want to tread a little more cautiously, given the insider selling that's been going on."

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