Glu Mobile is Seeing Strong Selling by Insiders. Are They Losing Confidence?

Insiders have the most transparent view when valuing the company’s share price because they run the day-to-day business operations. This could provide a significant advantage to traders and investors when considering an investment opportunity. When Executives sell large stakes in their own company, are they losing confidence? This could be the case for Glu Mobile GLUU.

GLUU Recent Inside Sellers

Director Hany Nada sold 1,369,177 from 5/27/11-5/31/11 at $5.01-$5.10 for $6.9M and 76,000 on 6/2/11 at $5.50 for $418,000. Director Matthew Drapkin sold 762,100 shares between 6/2/11- 6/6/11 at $4.97-$5.38 for $3.9M. A total of 2.2M shares were sold within 8 trading sessions.

Technical Analysis

The stock price has recently hit a peak of $5.75 on 6/2/11. The current price is $4.78 which is over 16% lower. The technical situation calls for lower price movement with a projected 20-30% decline until the nearest support levels are reached. The chart specifies key technical levels in pink.

Fundamental Analysis

Glu Mobile’s price-to-sales ratio is higher than 85% of its competitors in the Recreational Products industry. The trailing twelve month P/S ratio is over 4.0x, meaning investors are willing to pay 4-times than what the company earns in revenues. As a growth stock with skyrocketing sales, a high P/S ratio is justified. This is not the case with Glu Mobile. From 2008 to 2010, the company’s yearly revenues have decreased over 13% and over the last four quarters GLUU’s revenues have grown at a compounded quarterly growth rate of 0.73%. This does not justify its high P/S ratio.

Over the last twelve months, Glu Mobil has a 9.2x price-to-book ratio. This is also higher than 85% of it competitors in the Recreational Products industry. As a growth stock, a high P/B ratio is justified, but as highlighted earlier, GLUU is not growing by leaps and bounds. In fact, from 2008 to 2010, GLUU’s assets have actually decreased 51%, however, over the last four quarters the comapny’s assets have grown at a compounded quarterly growth rate of 6.44%.

Glu Mobile was not lucrative in the most recent fiscal year, so examining its price-to-earnings ratio is not appropriate.

Management Efficiency

GLUU’s return on equity is -70.42% over the last twelve months, this means that Glu Mobile is able to reinvest its earnings less efficiently than 89% of its competitors. A lower return on equity usually attracts fewer investors.

On the other hand, Glu Mobile’s current ratio is 2.0x. This states that GLUU’s current assets are 2 times greater than its current liabilities, which essentially means that Glu Mobile has no difficulty paying its short-term liabilities. The company’s gross margin is 68%, which is higher than 94% of its competitors in the Recreational Products industry. This basically means GLUU has more cash to spend on business operations than its competitors.