Do Insiders Own Lots Of Shares In Elmo Software Limited (ASX:ELO)?

If you want to know who really controls Elmo Software Limited (ASX:ELO), then you’ll have to look at the makeup of its share registry. Large companies usually have institutions as shareholders, and we usually see insiders owning shares in smaller companies. I generally like to see some degree of insider ownership, even if only a little. As Nassim Nicholas Taleb said, ‘Don’t tell me what you think, tell me what you have in your portfolio.

Elmo Software is not a large company by global standards. It has a market capitalization of AU$418m, which means it wouldn’t have the attention of many institutional investors. Taking a look at our data on the ownership groups (below), it’s seems that institutional investors have not yet purchased much of the company. Let’s delve deeper into each type of owner, to discover more about Elmo Software.

See our latest analysis for Elmo Software

ASX:ELO Ownership Summary April 22nd 2020
ASX:ELO Ownership Summary April 22nd 2020

What Does The Lack Of Institutional Ownership Tell Us About Elmo Software?

Institutional investors often avoid companies that are too small, too illiquid or too risky for their tastes. But it’s unusual to see larger companies without any institutional investors.

There could be various reasons why no institutions own shares in a company. Typically, small, newly listed companies don’t attract much attention from fund managers, because it would not be possible for large fund managers to build a meaningful position in the company. It is also possible that fund managers don’t own the stock because they aren’t convinced it will perform well. Elmo Software might not have the sort of past performance institutions are looking for, or perhaps they simply have not studied the business closely.

ASX:ELO Income Statement April 22nd 2020
ASX:ELO Income Statement April 22nd 2020

It would appear that 16% of Elmo Software 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. JLAB Investments (No. 2) Pty Ltd. is currently the largest shareholder, with 18% of shares outstanding. Immersion Capital LLP is the second largest shareholder with 16% of common stock, followed by Danny Lessem, holding 14% of the stock. Danny Lessem also happens to hold the title of Member of the Board of Directors.

A deeper analysis brings to light the fact that 61% of the company is controlled by the top 4 shareholders suggesting that these owners wield significant influence on the business.

Researching institutional ownership is a good way to gauge and filter a stock’s expected performance. The same can be achieved by studying analyst sentiments. There are plenty of analysts covering the stock, so it might be worth seeing what they are forecasting, too.

Insider Ownership Of Elmo Software

The definition of an insider can differ slightly between different countries, but members of the board of directors always count. Company management run the business, but the CEO will answer to the board, even if he or she is a member of it.

Insider ownership is positive when it signals leadership are thinking like the true owners of the company. However, high insider ownership can also give immense power to a small group within the company. This can be negative in some circumstances.

Our information suggests that insiders maintain a significant holding in Elmo Software Limited. Insiders have a AU$71m stake in this AU$418m business. 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 35% stake in ELO. While this group can’t necessarily call the shots, it can certainly have a real influence on how the company is run.

Private Company Ownership

Our data indicates that Private Companies hold 32%, of the company’s shares. It’s hard to draw any conclusions from this fact alone, so its worth looking into who owns those private companies. Sometimes insiders or other related parties have an interest in shares in a public company through a separate private company.

Next Steps:

It’s always worth thinking about the different groups who own shares in a company. But to understand Elmo Software better, we need to consider many other factors. Consider for instance, the ever-present spectre of investment risk. We’ve identified 3 warning signs with Elmo Software , and understanding them should be part of your investment process.

Ultimately the future is most important. You can access this free report on analyst forecasts for the company.

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.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Thank you for reading.