Do Insiders Own Lots Of Shares In Archer Materials Limited (ASX:AXE)?

The big shareholder groups in Archer Materials Limited (ASX:AXE) have power over the company. Institutions often own shares in more established companies, while it’s not unusual to see insiders own a fair bit of smaller companies. Warren Buffett said that he likes ‘a business with enduring competitive advantages that is run by able and owner-oriented people’. So it’s nice to see some insider ownership, because it may suggest that management is owner-oriented.

Archer Materials is not a large company by global standards. It has a market capitalization of AU$47m, which means it wouldn’t have the attention of many institutional investors. In the chart below, we can see that institutions are not really that prevalent on the share registry. Let’s delve deeper into each type of owner, to discover more about Archer Materials.

Check out our latest analysis for Archer Materials

ASX:AXE Ownership Summary, February 8th 2020
ASX:AXE Ownership Summary, February 8th 2020

What Does The Lack Of Institutional Ownership Tell Us About Archer Materials?

Small companies that are not very actively traded often lack institutional investors, but it’s less common to see large companies without them.

There are multiple explanations for why institutions don’t own a stock. The most common is that the company is too small relative to fund under management, so the institition does not bother to look closely at the company. On the other hand, it’s always possible that professional investors are avoiding a company because they don’t think it’s the best place for their money. Archer Materials might not have the sort of past performance institutions are looking for, or perhaps they simply have not studied the business closely.

ASX:AXE Income Statement, February 8th 2020
ASX:AXE Income Statement, February 8th 2020

Hedge funds don’t have many shares in Archer Materials. Looking at our data, we can see that the largest shareholder is Dragon Mining Limited with 3.5% of shares outstanding. Mohammad Choucair is the second largest shareholder with 1.5% of common stock, followed by Alice McCleary, holding 1.3% of the stock. Note that they are also Chief Executive Officer and Member of the Board of Directors, respectively, meaning that the company’s top shareholders are insiders.

Our studies suggest that the top 17 shareholders collectively control less than 50% of the company’s shares, meaning that the company’s shares are widely disseminated and there is no dominant shareholder.

While studying institutional ownership for a company can add value to your research, it is also a good practice to research analyst recommendations to get a deeper understand of a stock’s expected performance. As far I can tell there isn’t analyst coverage of the company, so it is probably flying under the radar.

Insider Ownership Of Archer Materials

While the precise definition of an insider can be subjective, almost everyone considers board members to be insiders. The company management answer to the board; and the latter should represent the interests of shareholders. Notably, sometimes top-level managers are on the board, themselves.

Most consider insider ownership a positive because it can indicate the board is well aligned with other shareholders. However, on some occasions too much power is concentrated within this group.

Our most recent data indicates that insiders own a reasonable proportion of Archer Materials Limited. It has a market capitalization of just AU$47m, and insiders have AU$5.0m 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, mostly retail investors, hold a substantial 84% stake in AXE, suggesting it is a fairly popular stock. With this size of ownership, retail investors can collectively play a role in decisions that affect shareholder returns, such as dividend policies and the appointment of directors. They can also exercise the power to decline an acquisition or merger that may not improve profitability.

Public Company Ownership

It appears to us that public companies own 3.5% of AXE. We can’t be certain, but this is quite possible this is a strategic stake. The businesses may be similar, or work together.

Next Steps:

It’s always worth thinking about the different groups who own shares in a company. But to understand Archer Materials better, we need to consider many other factors. Take risks, for example – Archer Materials has 7 warning signs (and 3 which are concerning) we think you should know about.

Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of interesting companies.

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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