CWAN Stock Insider Trading - Are Headwinds Imminent?

Recent insider activity from Clearwater Analytics (NYSE:CWAN) has gotten our attention and could suggest management believes unfavorable winds are about to arrive. Read on to see if you agree.

CWAN Background

Clearwater Analytics provides investment accounting and reporting, performance measurement, compliance monitoring and risk analytics solutions for asset managers, insurance companies and large corporations. As of the end of last year, the company has over 1,100 clients, whom it charges a fee proportional to the amount of assets managed on the platform, plus 1,371 employees. The company currently has a market capitalization of over $4 billion.

Clearwater went public in late September of last year at $18 per share. The stock peaked at over $26 dollars approximately one month after the IPO and has since retraced its steps to return back to its initial offering price, currently sitting just over $18. The stock price over this period is shown in the chart below:

We'll now take a look at the trading activity of Clearwater insiders during this period.

CWAN Insider Activity

The plot showing CWAN insider trading activity is shown below:

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When we examine the trading activity of Clearwater insiders, we see a very striking pattern emerge. We first note that we are only examining the activity of CWAN officers, as officers tend to be better informed than other insiders and trade more profitably as a result. Looking at the chart, we can see that after a long period of minimal activity apart from a few purchases, insiders have started selling large volumes of shares starting in November of this year. Selling large volumes in this fashion seemingly out of nowhere does send a negative signal to the market, in our view.

In addition to the large volume and sudden onset of sales, we also observe that these trades are being conducted by multiple officers in conjunction as opposed to a small number of high level executives. This is relatively unusual and is similar to what we recently observed with Johnson & Johnson's insiders. It suggests that insiders are acting on information that is available to all officers rather than just to a particular segment.

Insider Transactions by Joseph Kochansky and Gayatri Raman

Let's examine transactions by two CWAN insiders more closely in detail: Gayatri Raman and Joseph Kochansky. Ms. Raman is the president of CWAN's Europe and Asia segments while Mr. Kochansky is the head of R&D and Product functions. 

On December 13th and 14th of this year, Mr. Kochansky exercised options to acquire 260,000 shares and sold 234,160 of these at the then market price of $18.26. By examining the Initial Statement of Beneficial Ownership of Securities for Mr. Kochansky, we can see that at the time of these trades in December, only approximately 534,700 of these options were vested and exercisable. This means that Mr. Kochansky exercised nearly half of his available, exercisable options in order to sell on this date.

Turning now to Ms. Raman, we see that on December 13th, she exercised options to acquire 207,421 shares that were then sold at the market price. In total, the shares sold by Mr. Kochansky and Ms. Raman represented over $8 million in total value. Like Mr. Kochansky, Ms. Raman similarly exercised a significant portion of the possible options available at the time, another factor that gives more weight to these trades.

Conclusion

While only CWAN management knows the true reason for these sales, we are taking note due to 1) the sudden onset and large volume of trades, 2) the similar behavior from multiple insiders, and 3) the large proportion of shares being sold by multiple insiders. We will be watching closely to see how the story unfolds.

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