Here’s why the Appen (ASX:APX) share price is falling 5% today

The company’s CEO has cashed out $1.4 million worth of shares. Here’s the lowdown.

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An unhappy investor holding his eyes while watching a falling ASX share price on a computer screen.

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Appen Ltd (ASX: APX) shares are falling this morning after the company’s chief executive officer sold a sizeable amount of his shareholding.

At the time of writing, the Appen share price is trading 4.9% lower at $12.42.

Why is the CEO selling?

According to the announcement by the artificial intelligence data provider, CEO Mark Brayan disposed of 109,430 shares last Friday. The sale was actioned at $13.0805 per share — an approximate total sale value of $1.43 million.

Whenever a CEO cashes out of the company they are leading, eyebrows are raised. So, why has Brayan sold down his holding?

The company’s release specifies the sale was to satisfy tax obligations arising from the vesting of 173,153 performance rights in March.

Post-sale, Brayan retains 482,032 shares in the company. On that basis, this recent sale would represent a selldown of roughly 18.5% of Mr Brayan’s holdings in Appen.

Poor timing for Appen share price

Usually, shareholders aren’t too bothered by management taking some pocket change for their efforts. However, cashing out after a period of share price underperformance is a surefire way to leave investors with a bitter taste.

The Appen share price has fallen approximately 70% from its high back in August last year. Disappointment has lingered since the company issued a guidance downgrade in December, following a sluggish quarter.

More recently the shares have rebounded somewhat after the company announced a business restructuring. The move to reposition Appen with four distinct business units — Global, Enterprise, China, and Government — seemed to restore some shareholder optimism.

However, today’s down move indicates shareholders may feel the restructure alone isn’t enough to warrant a $1.4 million payday for the CEO.

Looking ahead

Shareholders will be hoping Appen delivers on its full-year guidance, which was reaffirmed in May. Between US$83 million and US$90 million is expected in underlying earnings before interest, tax, depreciation, and amortisation (EBITDA).

Once a growth company starts missing forecasts, it can get ugly quickly. The Appen share price will be skating on thin ice if FY21’s result disappoints — especially after seeing the CEO reduce his own interests in the company.

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Motley Fool contributor Mitchell Lawler owns shares of Appen Ltd. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and has recommended Appen Ltd. The Motley Fool Australia owns shares of and has recommended Appen Ltd. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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