Should You Be Concerned About Argonaut Gold Inc’s (TSE:AR) Investors?

In this article, I will take a quick look at Argonaut Gold Inc’s (TSE:AR) 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. Therefore, it is beneficial for us to examine AR’s ownership structure in more detail.

Check out our latest analysis for Argonaut Gold

TSX:AR Ownership Summary August 10th 18
TSX:AR Ownership Summary August 10th 18

Institutional Ownership

AR’s 47.76% institutional ownership seems enough to cause large share price movements in the case of significant share sell-off or acquisitions by institutions, particularly when there is a low level of public shares available on the market to trade. These moves, at least in the short-term, are generally observed in an institutional ownership mix comprising of active stock pickers, in particular levered hedge funds, which can cause large price swings. In the case of AR, investors need not worry about such volatility considering active hedge funds don’t have a significant stake. However, we should dig deeper into AR’s ownership structure and find out how other key ownership classes can affect its investment profile.

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. Although individuals in AR hold only a 1.86% stake, it’s a good sign for shareholders as the company’s executives and directors have their incentives directly linked to the company’s performance. It would also be interesting to check what insiders have been doing with their shareholding recently. Insider buying can be a positive indicator of future performance, but a selling decision can be simply driven by personal financial requirements.

General Public Ownership

A big stake of 50.38% in AR 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.

Next Steps:

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 is to avoid getting trapped in a sustained sell-off that is often observed in stocks with this level of institutional participation. However, if you are building an investment case for AR, ownership structure alone should not dictate your decision to buy or sell the stock. Instead, you should be evaluating company-specific factors such as Argonaut Gold’s past track record and financial health. 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 AR’s future growth? Take a look at our free research report of analyst consensus for AR’s outlook.
  2. Past Track Record: Has AR 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 AR’s historicals for more clarity.
  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.