Today, I will be analyzing Touchstone Exploration Inc’s (TSE:TXP) recent ownership structure, an important but not-so-popular subject among individual investors. The impact of a company’s ownership structure affects both its short- and long-term performance. If an activist institution invests the same amount of capital in a stock as a passive long-term pension fund, the implications are potentially different for key corporate financing decisions such as the use of excess cash or the source of financing. While these are more of a long-term investor’s concern, short-term investors may find the impact of institutional trading overwhelming enough to lose out on what could be a potential opportunity. Therefore, it is beneficial for us to examine TXP’s ownership structure in more detail.
Check out our latest analysis for Touchstone Exploration
Institutional Ownership
Institutional investors typically buy and sell shares in large magnitudes which can significantly sway the share price, especially when there are relatively small amounts of shares available on the market to trade. TXP has institutions holding a stake of just 6.30%, which should not be much of a concern in terms of excessive price volatility. But investors should also check whether hedge funds, mostly active investors with a short-term horizon, have a significant stake. They own 11.41% of TXP’s outstanding shares, enough to cause a spike in volatility, at least in the short-term. I am going to further examine the stock’s other major shareholders to figure out how they can affect the company’s investment profile for the long-term investor.Insider Ownership
An 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. With 8.00% ownership, TXP insiders is an important ownership type. An insider stake of this level indicates that executives are highly aligned with the shareholders as both stand to gain when the value of the company rises. I will also like to check what insiders have been doing recently with their holdings. 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 Ownership
A big stake of 63.22% in TXP is held by the general public. 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.Public Company Ownership
Another important group of owners for potential investors in TXP are other public companies that hold a stake of 11.07% in TXP. These are the companies that are mainly invested due to their strategic interests or incentivized by reaping capital gains on investments. This kind of ownership, if predominantly strategic, can give these companies a significant power to affect TXP’s business strategy. Thus, potential investors should look into these business relations and check how it can impact long-term shareholder returns.Next Steps:
While TXP has a low level of institutional ownership, active hedge funds still hold a significant stake in the company. Their ownership is a non-fundamental factor, which can impact TXP’s price volatility in the short-term, considering this group investors may come under pressure to deliver in the short term. A factor to consider is whether TXP offers enough margin of safety compared to its intrinsic value. However, ownership structure should not be the only determining factor when you’re building an investment thesis for TXP. Rather, you should be looking at fundamental drivers such as Touchstone Exploration’s past track record and financial health. I highly recommend you to complete your research by taking a look at the following:
- Financial Health: Is TXP’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 TXP 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 TXP’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.