What You Need To Know About Ecofibre Limited's (ASX:EOF) Investor Composition

By
Simply Wall St
Published
May 26, 2021
ASX:EOF
Source: Shutterstock

Every investor in Ecofibre Limited (ASX:EOF) should be aware of the most powerful shareholder groups. Insiders often own a large chunk of younger, smaller, companies while huge companies tend to have institutions as shareholders. 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.

Ecofibre is not a large company by global standards. It has a market capitalization of AU$169m, which means it wouldn't have the attention of many institutional investors. Our analysis of the ownership of the company, below, shows that institutional investors have bought into the company. We can zoom in on the different ownership groups, to learn more about Ecofibre.

See our latest analysis for Ecofibre

ownership-breakdown
ASX:EOF Ownership Breakdown May 27th 2021

What Does The Institutional Ownership Tell Us About Ecofibre?

Institutions typically measure themselves against a benchmark when reporting to their own investors, so they often become more enthusiastic about a stock once it's included in a major index. We would expect most companies to have some institutions on the register, especially if they are growing.

We can see that Ecofibre does have institutional investors; and they hold a good portion of the company's stock. This implies the analysts working for those institutions have looked at the stock and they like it. But just like anyone else, they could be wrong. When multiple institutions own a stock, there's always a risk that they are in a 'crowded trade'. When such a trade goes wrong, multiple parties may compete to sell stock fast. This risk is higher in a company without a history of growth. You can see Ecofibre's historic earnings and revenue below, but keep in mind there's always more to the story.

earnings-and-revenue-growth
ASX:EOF Earnings and Revenue Growth May 27th 2021

We note that hedge funds don't have a meaningful investment in Ecofibre. Our data shows that Barry Lambert is the largest shareholder with 22% of shares outstanding. With 16% and 9.5% of the shares outstanding respectively, Philip Warner and James Vicars are the second and third largest shareholders. In addition, we found that Eric Wang, the CEO has 4.1% of the shares allocated to their name.

Our research also brought to light the fact that roughly 52% 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. While there is some analyst coverage, the company is probably not widely covered. So it could gain more attention, down the track.

Insider Ownership Of Ecofibre

The definition of company insiders can be subjective and does vary between jurisdictions. Our data reflects individual insiders, capturing board members at the very least. 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.

It seems that insiders own more than half the Ecofibre Limited stock. This gives them a lot of power. So they have a AU$96m stake in this AU$169m business. It is good to see this level of investment. You can check here to see if those insiders have been buying recently.

General Public Ownership

With a 32% ownership, the general public have some degree of sway over Ecofibre. 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.

Private Company Ownership

We can see that Private Companies own 5.4%, of the shares on issue. Private companies may be related parties. Sometimes insiders have an interest in a public company through a holding in a private company, rather than in their own capacity as an individual. While it's hard to draw any broad stroke conclusions, it is worth noting as an area for further research.

Next Steps:

It's always worth thinking about the different groups who own shares in a company. But to understand Ecofibre better, we need to consider many other factors. Be aware that Ecofibre is showing 4 warning signs in our investment analysis , and 1 of those is concerning...

But ultimately it is the future, not the past, that will determine how well the owners of this business will do. Therefore we think it advisable to take a look at this free report showing whether analysts are predicting a brighter future.

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.

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