Today, I will be analyzing Kaizen Discovery Inc’s (TSXV:KZD) recent ownership structure, an important but not-so-popular subject among individual investors. Ownership structure has been found to have an impact on shareholder returns in both short- and long-term. 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 KZD’s ownership structure in more detail.View our latest analysis for Kaizen Discovery
Insider OwnershipInsiders form another group of important ownership types as they manage the company’s operations and decide the best use of capital. Insider ownership has been linked to better alignment between management and shareholders. KZD insiders hold a minor stake in the company, which somewhat aligns their interests with that of shareholders. However, a higher level of insider ownership has been linked to management executing on high-returning projects instead of expansion projects for the sake of apparent growth. 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 OwnershipA substantial ownership of 32.52% in KZD 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.
Private Company OwnershipAnother group of owners that a potential investor in KZD should consider are private companies, with a stake of 67.08%. While they invest more often due to strategic interests, an investment can also be driven by capital gains through share price appreciation. An ownership of this size indicates a strong financial backing and has the potential to influence KZD’s business strategy. Thus, investors should dig deeper into KZD’s business relations with these companies and how it can affect shareholder returns in the long-term.
What this means for you:
A relatively low shareholding by company insider could indicate potential misalignment of interest. However, on the other hand, this could also be a positive as the level of influence over the board of directors can also be limited. However, ownership structure should not be the only focus of your research when constructing an investment thesis around KZD. Rather, you should be examining fundamental factors such as Kaizen Discovery’s past track record and financial health. I urge you to complete your research by taking a look at the following:
1. Financial Health: Is KZD’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.
2. Past Track Record: Has KZD 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 KZD’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.