News

The CEO of Napco Security Technologies (NASDAQ: NSSC) is selling part of his stake in the company, and investors are disappointed. Shares of Napco were down 8% as of noon ET Wednesday, and had been down by as much as 12% earlier in the session.

An unexpected secondary

Napco is a maker of electronic security devices, including automated locks and building access control systems. The stock has been on a run-up of late, but that came to a halt after the company on Tuesday disclosed plans for a 2.3 million share secondary offering priced at $40.75 per share.

The shares are being sold by CEO Richard L. Soloway. The executive is not liquidating his entire holding. As of Nov. 8, when Napco released its annual proxy statement, Soloway owned 3.798 million shares of the company, or 10.3% of the total.

Napco noted that the company is not issuing any new shares nor selling any stock, meaning the number of shares outstanding will remain flat, and existing shareholders will not be diluted. But the offering is priced below the stock's $44.06 Monday closing price, and discounted secondary sales often put near-term pressure on a company's shares.

Should you be buying Napco stock as its CEO is selling?

Generally, investors would prefer to see insiders adding to their stakes instead of selling stock. But there is no reason to assume there are issues with the business just because Soloway is selling. Executives often have much of their net worth tied up in company stock, and sales are often done for diversification reasons or when they need liquidity.

Shares of Napco were up 30% year to date prior to the disclosure and have more than tripled the performance of the S&P 500 over the past five years. The company's latest results showed solid momentum, and the company boosted its dividend.

This event is a reminder of the volatility that comes with high-flying stocks. But for those drawn to the company and excited about its potential to grow from here, these headlines should not dissuade you from buying into Napco.

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