Could Little Green Pharma Ltd’s (ASX:LGP) Investor Composition Influence The Stock Price?

A look at the shareholders of Little Green Pharma Ltd (ASX:LGP) can tell us which group is most powerful. Insiders often own a large chunk of younger, smaller, companies while huge companies tend to have institutions as shareholders. I quite like to see at least a little bit of insider ownership. As Charlie Munger said ‘Show me the incentive and I will show you the outcome.

With a market capitalization of AU$52m, Little Green Pharma is a small cap stock, so it might not be well known by many institutional investors. In the chart below, we can see that institutional investors have not yet purchased much of the company. We can zoom in on the different ownership groups, to learn more about Little Green Pharma.

View our latest analysis for Little Green Pharma

ASX:LGP Ownership Summary May 21st 2020
ASX:LGP Ownership Summary May 21st 2020

What Does The Institutional Ownership Tell Us About Little Green Pharma?

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.

Less than 5% of Little Green Pharma is held by institutional investors. This suggests that some funds have the company in their sights, but many have not yet bought shares in it. If the business gets stronger from here, we could see a situation where more institutions are keen to buy. It is not uncommon to see a big share price rise if multiple institutional investors are trying to buy into a stock at the same time. So check out the historic earnings trajectory, below, but keep in mind it’s the future that counts most.

ASX:LGP Income Statement May 21st 2020
ASX:LGP Income Statement May 21st 2020

We note that hedge funds don’t have a meaningful investment in Little Green Pharma. Elixxer Ltd. is currently the largest shareholder, with 23% of shares outstanding. The second and third largest shareholders are Fleta Solomon and Angus Caithness, holding 15% and 4.1%, respectively. They also happen to be Chief Executive Officer and Member of the Board of Directors, respectively. That is, insiders feature higher up in the heirarchy of the company’s top shareholders.

On further inspection, we found that 51% of the share register is owned by the top 6 shareholders, suggesting that the interests of the larger shareholders are balanced out to an extent by the smaller ones.

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. 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 Little Green Pharma

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.

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 most recent data indicates that insiders own a reasonable proportion of Little Green Pharma Ltd. Insiders own AU$14m worth of shares in the AU$52m company. This may suggest that the founders still own a lot of shares. You can click here to see if they have been buying or selling.

General Public Ownership

The general public holds a 36% stake in LGP. 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 9.1%, of the shares on issue. It might be worth looking deeper into this. If related parties, such as insiders, have an interest in one of these private companies, that should be disclosed in the annual report. Private companies may also have a strategic interest in the company.

Public Company Ownership

We can see that public companies hold 23%, of the LGP shares on issue. We can’t be certain, but this is quite possible this is a strategic stake. The businesses may be similar, or work together.

Next Steps:

I find it very interesting to look at who exactly owns a company. But to truly gain insight, we need to consider other information, too. Take risks, for example – Little Green Pharma has 4 warning signs (and 2 which are significant) we think you should know about.

Of course this may not be the best stock to buy. Therefore, you may wish to see our free collection of interesting prospects boasting favorable financials.

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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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. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned. Thank you for reading.