What happened
Rumble(NASDAQ: RUM) stock is sinking this week following the expiration of its lockup period. The company's share price was down 23% from last week's market close heading into this Friday's daily trading session, according to data from S&P Global Market Intelligence.
The lockup period for Rumble stock expired on Sept. 19, opening the door for insiders at the company to sell shares of its stock. The streaming-video specialist was taken public through a merger with a special purpose acquisition (SPAC) company in September 2022.
When a company goes public, there are often limitations put in place that prevent company insiders from selling their shares shortly after they hit the market. The duration of time that prevents insiders from selling shares is known as the lockup period.
So what
In the lead-up to the expiration, Rumble CEO Chris Pavlovski said that he would not sell any company stock when the lockup was lifted. He appears to be holding true to that promise, but some investors may have differing interpretations.
A Form 4 filing with the Securities and Exchange Commission published on Sept. 19 showed that Pavlovski disposed of more than 196,200 shares of Rumble stock on Sept. 16 at a price of $6.79 per share.
Per the Form 4 filing, the disposal represented "the withholding of shares by the issuer to satisfy tax liability arising from the vesting of restricted stock units, which were originally granted to Mr. Pavlovski on September 16, 2022, in connection with the closing of the de-SPAC transaction." As noted in the form, Pavlovski did not sell shares as part of the transaction.
The executive still owns roughly 140 million shares of company stock, so the disposal disclosure looks largely insignificant. Nevertheless, it's possible that the disposal caught some shareholders off guard. It's also possible that other Rumble insiders sold significant amounts of stock following the lockup expiration.
Now what
When a lockup period expires, insider shareholders become able to sell their shares. An influx of shares being sold on the market can have the effect of pushing the company's stock price down significantly.
A surge in insider selling is often interpreted as a bad sign by investors. If insiders are selling shares, it could be a sign that they don't have confidence that the company's stock will perform well in the future.
RUM PS Ratio (Forward) data by YCharts.
Despite being down roughly 69% from the high it reached shortly after its public debut, Rumble is still valued at approximately 15x this year's expected sales. The company is increasing revenue quickly, with sales rising 468% year over year to reach $25 million last quarter, but its growth-dependent valuation opens the door for the stock to see continued volatility.
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Keith Noonan has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
