Nanxing Machinery Co., Ltd.'s (SZSE:002757) last week's 9.8% decline must have disappointed individual investors who have a significant stake

Key Insights

• Nanxing Machinery's significant individual investors ownership suggests that the key decisions are influenced by shareholders from the larger public
• The top 25 shareholders own 48% of the company
• Using data from company's past performance alongside ownership research, one can better assess the future performance of a company

To get a sense of who is truly in control of Nanxing Machinery Co., Ltd. (SZSE:002757), it is important to understand the ownership structure of the business. With 52% stake, individual investors possess the maximum shares in the company. That is, the group stands to benefit the most if the stock rises (or lose the most if there is a downturn).

As a result, individual investors as a group endured the highest losses last week after market cap fell by CN¥449m.

Let's take a closer look to see what the different types of shareholders can tell us about Nanxing Machinery.

See our latest analysis for Nanxing Machinery

What Does The Institutional Ownership Tell Us About Nanxing Machinery?

Institutional investors commonly compare their own returns to the returns of a commonly followed index. So they generally do consider buying larger companies that are included in the relevant benchmark index.

Since institutions own only a small portion of Nanxing Machinery, many may not have spent much time considering the stock. But it's clear that some have; and they liked it enough to buy in. If the business gets stronger from here, we could see a situation where more institutions are keen to buy. We sometimes see a rising share price when a few big institutions want to buy a certain stock at the same time. The history of earnings and revenue, which you can see below, could be helpful in considering if more institutional investors will want the stock. Of course, there are plenty of other factors to consider, too.

Nanxing Machinery is not owned by hedge funds. Looking at our data, we can see that the largest shareholder is Dongguan Nanxing Industrial Investment Co., Ltd. with 38% of shares outstanding. In comparison, the second and third largest shareholders hold about 3.8% and 3.1% of the stock. Note that the second and third-largest shareholders are also Chief Executive Officer and Chairman of the Board, respectively, meaning that the company's top shareholders are insiders.

Our studies suggest that the top 25 shareholders collectively control less than half of the company's shares, meaning that the company's shares are widely disseminated and there is no dominant shareholder.

While it makes sense to study institutional ownership data for a company, it also makes sense to study analyst sentiments to know which way the wind is blowing. As far as we can tell there isn't analyst coverage of the company, so it is probably flying under the radar.

Insider Ownership Of Nanxing Machinery

While the precise definition of an insider can be subjective, almost everyone considers board members to be insiders. Company management run the business, but the CEO will answer to the board, even if he or she is a member of it.

Insider ownership is positive when it signals leadership are thinking like the true owners of the company. However, high insider ownership can also give immense power to a small group within the company. This can be negative in some circumstances.

Shareholders would probably be interested to learn that insiders own shares in Nanxing Machinery Co., Ltd.. It has a market capitalization of just CN¥4.2b, and insiders have CN¥295m worth of shares, in their own names. Some would say this shows alignment of interests between shareholders and the board. But it might be worth checking if those insiders have been selling.

General Public Ownership

The general public, who are usually individual investors, hold a substantial 52% stake in Nanxing Machinery, suggesting it is a fairly popular stock. This size of ownership gives investors from the general public some collective power. They can and probably do influence decisions on executive compensation, dividend policies and proposed business acquisitions.

Private Company Ownership

It seems that Private Companies own 38%, of the Nanxing Machinery stock. It might be worth looking deeper into this. If related parties, such as insiders, have an interest in one of these private companies, that should be disclosed in the annual report. Private companies may also have a strategic interest in the company.

Next Steps:

While it is well worth considering the different groups that own a company, there are other factors that are even more important. Consider for instance, the ever-present spectre of investment risk. We've identified 4 warning signs with Nanxing Machinery (at least 2 which don't sit too well with us) , and understanding them should be part of your investment process.

Of course this may not be the best stock to buy. Therefore, you may wish to see our free collection of interesting prospects boasting favorable financials.

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.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.