Tracking what insiders in a company are doing with their shares is a very old investment strategy. They clearly have more information than the general public, so understanding what they're doing is key to successful investing.
Jeff Bezos, founder, former CEO, and executive chair on the board of directors, plans to sell a ton of Amazon (NASDAQ: AMZN) stock. Should investors panic and follow suit? Or is there something else going on here?
Bezos' sales are all part of a plan
Because Bezos is an insider, he must file with the SEC when he either buys or sells the stock or wants to make a plan to sell shares. That last part is key, as selling shares without notice could panic the public. If insiders disclose a plan to sell a chunk of stock well in advance, it shows it isn't a panic sale; it's just part of a larger financial plan.
Peter Lynch, one of the greatest investors of all time, was famous for saying there are many reasons to sell a stock, as an insider may be diversifying their investments, buying a house, or spending money. As a result, investors should be less concerned about insiders selling and more interested in if insiders are buying.
Now, there are caveats to this argument. Should every insider sell all their shares at once, then that's probably time to panic.
Bezos plans to sell 25 million shares, which will be worth around $5 billion at the current market price. While that may seem like a massive chunk of change for you and me, Bezos owned over 1 billion shares earlier this year when Amazon disclosed its insider ownership. Currently, that's worth around $220 billion, so the amount of shares he's selling is minimal.
So investors shouldn't see this as a panic sale, as it's really not a lot of shares in the grand scheme of things. After all, Amazon is truly excelling right now.
Amazon's business is booming
Amazon has been on fire lately, which is why the stock has risen nearly 30% in 2024 so far. There hasn't been a down segment, which has helped boost the stock.
Its largest division, North American commerce, saw sales rise 12% to $86.3 billion in Q1 and posted a 5.8% operating income margin -- a huge increase from last year's 1.2% margin. Moving to international, this segment saw sales increase 10% year over year and posted its first operating income in a few years.
But the star of the show is Amazon Web Services (AWS). AWS is Amazon's cloud computing division and is emerging from a disappointing 2023. In 2023, its clients focused on optimizing spending, which meant less revenue for AWS.
While AWS's revenue didn't shrink because of the optimization trend, it hurt its growth rates. However, that trend is wrapped up, and new workloads are coming online, especially in the area of artificial intelligence (AI).
In Q1, AWS's sales rose 17% to $25 billion, and operating income totaled $9.4 billion. That's an impressive 38% operating margin and is a huge reason why Amazon's profits are as good as they are.
Amazon is truly excelling as a business right now and is producing record cash flows.
AMZN Free Cash Flow data by YCharts
Unlike its previous high, which was influenced by pandemic demand, Amazon's current results are sustainable and are a top reason to invest in the company.
Although Bezos is currently selling stock, I think the average investor should be buying, as Amazon still has a long growth runway.
John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Keithen Drury has positions in Amazon. The Motley Fool has positions in and recommends Amazon. The Motley Fool has a disclosure policy .
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