In this article, I’m going to take a look at Hotcopper Holdings Limited’s (ASX:HOT) latest ownership structure, a non-fundamental factor which is important, but remains a less discussed subject among investors. A company’s ownership structure is often linked to its share performance in both the long- and short-term. Different types of investors can have varying degrees of influence on a company’s management team. For example, an active institutional investor may be more likely to hold a company accountable for certain actions whereas a passive fund will move in and out of stocks without regards to corporate governance. The implications of these institutions’ actions can either benefit or hinder individual investors, so it is important to understand the ownership composition of your stock investment. Therefore, I will take a look at HOT’s shareholders in more detail.See our latest analysis for Hotcopper Holdings
Institutional OwnershipInstitutions account for 29.17% of HOT’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. Although HOT has a high institutional ownership, such stock moves, in the short-term, are more commonly linked to a particular type of active institutional investors – hedge funds. In the case of HOT, investors need not worry about such volatility considering active hedge funds don’t have a significant stake. However, we should dig deeper into HOT’s ownership structure and find out how other key ownership classes can affect its investment profile.
Insider OwnershipAnother important group of shareholders are company insiders. Insider ownership has to do more with how the company is managed and less to do with the direct impact of the magnitude of shares trading on the market. 51.96% ownership of HOT insiders is large enough to make an impact on shareholder returns. In general, this level of insider ownership has negatively affected underperforming (consistently low PE ratio) companies and positively affected the companies that outperform (consistently high PE ratio). Another aspect of insider ownership is to learn about their recent transactions. 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 OwnershipThe general public, with 1.17% stake, is a relatively minor group of shareholders in HOT. This size of ownership may not be enough to sway a policy decision in their favour, but they can still make a collective impact on company policies if it aligns with other large shareholders.
Private Company OwnershipPotential investors in HOT should also look at another important group of investors: private companies, with a stake of 17.70%, who are primarily invested because of strategic and capital gain interests. This kind of ownership, if predominantly strategic, can give these companies a significant power to affect HOT’s business strategy. Thus, potential investors should look into these business relations and check how it can impact long-term shareholder returns.
The company’s high institutional ownership makes margin of safety a very important consideration to existing investors since long bull and bear trends often emerge when these big-ticket investors see a change in long-term potential of the company. 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, ownership structure should not be the only focus of your research when constructing an investment thesis around HOT. Rather, you should be examining fundamental factors such as the intrinsic valuation, which is a key driver of Hotcopper Holdings’s share price. I urge you to complete your research by taking a look at the following:
- Financial Health: Is HOT’s operations financially sustainable? Balance sheets can be hard to analyze, which is why we’ve done it for you. Check out our financial health checks here.
- Past Track Record: Has HOT 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 HOT’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.