Why Pelangio Exploration Inc’s (TSXV:PX) Investor Composition Impacts Your Returns

I am going to take a deep dive into Pelangio Exploration Inc’s (TSXV:PX) most recent ownership structure, not a frequent subject of discussion among individual investors. When it comes to ownership structure of a company, the impact has been observed in both the long-and short-term performance of shares. If an activist institution invests the same amount of capital in a stock as a passive long-term pension fund, the implications are potentially different for key corporate financing decisions such as the use of excess cash or the source of financing. While these are more of a long-term investor’s concern, short-term investors may find the impact of institutional trading overwhelming enough to lose out on what could be a potential opportunity. Therefore, I will take a look at PX’s shareholders in more detail.

See our latest analysis for PX
TSXV:PX Ownership Summary Oct 25th 17
TSXV:PX Ownership Summary Oct 25th 17

Institutional Ownership

Institutional investors are one of the largest group of market participants and their buy-sell decisions on a company’s stock can significantly impact prices, more so, when there are relatively small amounts of shares available on the market to trade. A low institutional ownership of 8.40% puts PX on a list of companies that are not likely exposed to spikes in volatility resulting from institutional trading. Less covered stocks like PX used to feature in legendary investor Peter Lynch’s portfolio, which would later be bought up by fast-following institutions as the stock gained more popularity.

Insider Ownership

I find insiders are another important group of stakeholders, who are directly involved in making key decisions related to the use of capital. In essence, insider ownership is more about the alignment of shareholders’ interests with the management. One of the major owners in PX are individual insiders, sitting with a hefty 12.25% stake in the company. Broadly, insider ownership of this level has been found to negatively affect companies with consistently low PE ratio (underperforming). And a positive impact has been seen on companies with a high PE ratio (outperforming). It may be interesting to take a look at what company insiders have been doing with their holdings lately. Insider buying may be a sign of upbeat future expectations, however, selling doesn’t necessarily mean the opposite as insiders may be motivated by their personal financial needs.

General Public Ownership

A big stake of 78.71% in PX is held by the general public. With this size of ownership, retail investors can collectively play a role in major company policies that affect shareholders returns, including executive remuneration and the appointment of directors. They can also exercise the power to decline an acquisition or merger that may not improve profitability.

Private Company Ownership

Potential investors in PX should also look at another important group of investors: private companies, with a stake of 0.64%, who are primarily invested because of strategic and capital gain interests. However, an ownership of this size may be relatively insignificant, meaning that these shareholders may not have the potential to influence PX’s business strategy. Thus, investors not need to worry too much about the consequences of these holdings.

What this means for you:

Are you a shareholder? Institutional ownership in PX is not at a level that would concern investors. We are less likely to see sustained downtrends or significant volatility resulting from large institutional trading. Looking for ways to reinforce your current portfolio holdings? Take a look at our free platform for a list of stocks with a strong growth potential.

Are you a potential investor? If you are building an investment case for PX, ownership structure alone should not dictate your decision to buy or sell the stock. Rather, you should be examining fundamental factors like the intrinsic valuation of PX, which is a key driver of PX’s share price. Take a look at our most recent infographic report on PX for a more in-depth analysis of these factors to help you make a more well-informed investment decision.

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.