In this article, I’m going to take a look at Santos Limited’s (ASX:STO) latest ownership structure, a non-fundamental factor which is important, but remains a less discussed subject among investors. The impact of a company’s ownership structure affects both its short- and long-term performance. Differences in ownership structure of companies can have a profound effect on how management’s incentives are aligned with shareholder returns, and whether they adhere to corporate governance best practices. Although this is an important factor for long-term investors, many investors can also be impacted by institutional presence and their high-volume trading. Therefore, it is beneficial for us to examine STO’s ownership structure in more detail.Check out our latest analysis for Santos
Institutional OwnershipInstitutions account for 16.40% of STO’s outstanding shares, a significant enough holding to move stock prices if they start buying and selling in large quantities, especially when there are relatively small amounts of shares available on the market to trade. These moves, at least in the short-term, are generally observed in an institutional ownership mix comprising of active stock pickers, in particular levered hedge funds, which can cause large price swings. For STO shareholders, the potential of this type of share price volatility shouldn’t be as concerning as hedge fund ownership is is not significant,indicating few chances of such sudden price moves. While that hardly seems concerning, I will explore further into STO’s ownership type to find out how it can affect the company’s investment profile.
Insider OwnershipInsiders form another group of important ownership types as they manage the company’s operations and decide the best use of capital. Insider ownership has been linked to better alignment between management and shareholders. Although individuals in STO hold only a minor stake, given STO is a large-cap company, it is relatively meaningful. This is a good sign for shareholders as the company’s executives and directors have their incentives directly linked to the company’s performance. It would also be interesting to check what insiders have been doing with their shareholding recently. Insider buying can be a positive indicator of future performance, but a selling decision can be simply driven by personal financial requirements.
General Public OwnershipThe general public holds a substantial 68.07% stake in STO, making it a highly popular stock among retail investors. 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 OwnershipPotential investors in STO should also look at another important group of investors: private companies, with a stake of 5.24%, who are primarily invested because of strategic and capital gain interests. An ownership of this size indicates a strong financial backing and has the potential to influence STO’s business strategy. Thus, investors should dig deeper into STO’s business relations with these companies and how it can affect shareholder returns in the long-term.
STO’s considerably high level of institutional ownership calls for further analysis into its margin of safety. This will enable shareholders to comfortably invest in the company while avoid getting trapped in a sustained sell-off that is often observed in stocks with this level of institutional participation. However, if you are building an investment case for STO, ownership structure alone should not dictate your decision to buy or sell the stock. Rather, you should be examining fundamental factors such as Santos’s past track record and financial health. I urge you to complete your research by taking a look at the following:
- Future Outlook: What are well-informed industry analysts predicting for STO’s future growth? Take a look at our free research report of analyst consensus for STO’s outlook.
- Past Track Record: Has STO been consistently performing well irrespective of the ups and downs in the market? Go into more detail in the past performance analysis and take a look at the free visual representations of STO’s historicals for more clarity.
- Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.