Every investor in China Distance Education Holdings Limited (NYSE:DL) should be aware of the most powerful shareholder groups. Large companies usually have institutions as shareholders, and we usually see insiders owning shares in smaller companies. I quite like to see at least a little bit of insider ownership. As Charlie Munger said ‘Show me the incentive and I will show you the outcome.
China Distance Education Holdings is a smaller company with a market capitalization of US$314m, so it may still be flying under the radar of many institutional investors. Taking a look at our data on the ownership groups (below), it’s seems that institutions own shares in the company. Let’s take a closer look to see what the different types of shareholder can tell us about China Distance Education Holdings.
View our latest analysis for China Distance Education Holdings
What Does The Institutional Ownership Tell Us About China Distance Education Holdings?
Institutional investors commonly compare their own returns to the returns of a commonly followed index. So they generally do consider buying larger companies that are included in the relevant benchmark index.
We can see that China Distance Education Holdings does have institutional investors; and they hold 24% of the stock. This can indicate that the company has a certain degree of credibility in the investment community. However, it is best to be wary of relying on the supposed validation that comes with institutional investors. They too, get it wrong sometimes. When multiple institutions own a stock, there’s always a risk that they are in a ‘crowded trade’. When such a trade goes wrong, multiple parties may compete to sell stock fast. This risk is higher in a company without a history of growth. You can see China Distance Education Holdings’s historic earnings and revenue, below, but keep in mind there’s always more to the story.
It would appear that 19% of China Distance Education Holdings shares are controlled by hedge funds. That worth noting, since hedge funds are often quite active investors, who may try to influence management. Many want to see value creation (and a higher share price) in the short term or medium term. With a 39% stake, CEO Zhengdong Zhu is the largest shareholder. The second largest shareholder with 19%, is YM Investment LTD., followed by Wells Capital Management Incorporated, with an ownership of 6.7%.
Further, we found that the top 2 shareholders have a combined ownership of 59% in the company, meaning that they are powerful enough to influence the decisions of the company.
While it makes sense to study institutional ownership data for a company, it also makes sense to study analyst sentiments to know which way the wind is blowing. There is some analyst coverage of the stock, but it could still become more well known, with time.
Insider Ownership Of China Distance Education Holdings
While the precise definition of an insider can be subjective, almost everyone considers board members to be insiders. Company management run the business, but the CEO will answer to the board, even if he or she is a member of it.
I generally consider insider ownership to be a good thing. However, on some occasions it makes it more difficult for other shareholders to hold the board accountable for decisions.
Our most recent data indicates that insiders own a reasonable proportion of China Distance Education Holdings Limited. It has a market capitalization of just US$314m, and insiders have US$129m worth of shares in their own names. I would say this shows alignment with shareholders, but it is worth noting that the company is still quite small; some insiders may have founded the business. You can click here to see if those insiders have been buying or selling.
General Public Ownership
The general public holds a 15% stake in DL. While this size of ownership may not be enough to sway a policy decision in their favour, they can still make a collective impact on company policies.
Next Steps:
It’s always worth thinking about the different groups who own shares in a company. But to understand China Distance Education Holdings better, we need to consider many other factors. Be aware that China Distance Education Holdings is showing 1 warning sign in our investment analysis , you should know about…
If you are like me, you may want to think about whether this company will grow or shrink. Luckily, you can check this free report showing analyst forecasts for its future.
NB: Figures in this article are calculated using data from the last twelve months, which refer to the 12-month period ending on the last date of the month the financial statement is dated. This may not be consistent with full year annual report figures.
If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned.
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