The big shareholder groups in Solution Dynamics Limited (NZSE:SDL) have power over the company. Insiders often own a large chunk of younger, smaller, companies while huge companies tend to have institutions as shareholders. 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.
Solution Dynamics is not a large company by global standards. It has a market capitalization of NZ$23m, which means it wouldn’t have the attention of many institutional investors. In the chart below, we can see that institutions own shares in the company. We can zoom in on the different ownership groups, to learn more about Solution Dynamics.
What Does The Institutional Ownership Tell Us About Solution Dynamics?
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.
As you can see, institutional investors own 35% of Solution Dynamics. 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. It is not uncommon to see a big share price drop if two large institutional investors try to sell out of a stock at the same time. So it is worth checking the past earnings trajectory of Solution Dynamics, (below). Of course, keep in mind that there are other factors to consider, too.
Hedge funds don’t have many shares in Solution Dynamics. New Zealand Permanent Trustees Limited, Asset Management Arm is currently the company’s largest shareholder with 11% of shares outstanding. With 11% and 11% of the shares outstanding respectively, Aspiring Asset Management Limited and John McMahon are the second and third largest shareholders. John McMahon also happens to hold the title of Chairman of the Board.
We also observed that the top 6 shareholders account for 53% of the register, with a few smaller shareholders to balance the interests of the larger ones to a certain extent.
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. We’re not picking up on any analyst coverage of the stock at the moment, so the company is unlikely to be widely held.
Insider Ownership Of Solution Dynamics
The definition of an insider can differ slightly between different countries, but members of the board of directors always count. Management ultimately answers to the board. However, it is not uncommon for managers to be executive board members, especially if they are a founder or the CEO.
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 Solution Dynamics Limited. It has a market capitalization of just NZ$23m, and insiders have NZ$8.2m worth of shares in their own names. It is great to see insiders so invested in the business. It might be worth checking if those insiders have been buying recently.
General Public Ownership
With a 28% ownership, the general public have some degree of sway over SDL. This size of ownership, while considerable, may not be enough to change company policy if the decision is not in sync with other large shareholders.
While it is well worth considering the different groups that own a company, there are other factors that are even more important. Consider for instance, the ever-present spectre of investment risk. We’ve identified 4 warning signs with Solution Dynamics (at least 1 which shouldn’t be ignored) , and understanding them should be part of your investment process.
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 firstname.lastname@example.org. 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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