Why Inplay Oil Corp’s (TSE:IPO) Investor Composition Impacts Your Returns

In this article, I will take a quick look at Inplay Oil Corp’s (TSE:IPO) recent ownership structure – an unconventional investing subject, but an important one. A company’s ownership structure is often linked to its share performance in both the long- and short-term. The same amount of capital coming from an activist institution and a passive mutual fund has different implications on corporate governance, which is a decisive factor for a long-term investor. It also impacts the trading environment of company shares, which is more of a concern for short-term investors. Now I will analyze IPO’s shareholder registry in more detail.

Check out our latest analysis for Inplay Oil

TSX:IPO Ownership Summary August 22nd 18
TSX:IPO Ownership Summary August 22nd 18

Institutional Ownership

Institutional investors transact in large blocks which can influence the momentum of stock prices, at least in the short-term, especially when there is a low level of public shares available on the market to trade. A low institutional ownership of 6.77% puts IPO on a list of companies that are not likely exposed to spikes in volatility resulting from institutional trading. Apart from low institutional ownership, another indicator of IPO’s low popularity is the fact that the company is only covered by 2 analysts.

Insider Ownership

I find insiders are an 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. With a stake of 1.44%, insiders seem to have some alignment of interest with shareholders. A higher level of insider ownership has been found to reflect the choosing of projects with higher return on investments compared to lower returning projects for the sake of expansion. In addition to this, it may be interesting to look at insider buying and selling activities. Keep in mind that buying may be sign of upbeat future expectations, but selling doesn’t necessarily mean the opposite as the insiders might just be doing it out of their personal financial needs.

General Public Ownership

A big stake of 50.48% in IPO is held by the general public. This level of ownership gives retail investors the power to sway key policy decisions such as board composition, executive compensation, and potential acquisitions. This is a positive sign for an investor who wants to be involved in key decision-making of the company.

Private Equity Ownership

Private equity firms hold a 30.86% stake in IPO. With a stake of this size, they can be influential in key policy decisions. This is a positive sign for potential investors as these firms play an important role in aligning company policy with shareholder returns.

Public Company Ownership

Another important group of owners for potential investors in IPO are other public companies that hold a stake of 10.45% in IPO. These are the companies that are mainly invested due to their strategic interests or incentivized by reaping capital gains on investments. With this size of ownership in IPO, this ownership class can affect the company’s business strategy. As a result, potential investors should further explore the company’s business relations with these companies and find out if they can affect shareholder returns in the long-term.

Next Steps:

Institutional ownership in IPO 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. However, ownership structure should not be the only focus of your research when constructing an investment thesis around IPO. Rather, you should be examining fundamental factors such as the intrinsic valuation, which is a key driver of Inplay Oil’s share price. I highly recommend you to complete your research by taking a look at the following:

  1. Future Outlook: What are well-informed industry analysts predicting for IPO’s future growth? Take a look at our free research report of analyst consensus for IPO’s outlook.
  2. Financial Health: Are IPO’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.
  3. 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.

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.

To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.

The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.