Shenzhen Honor Electronic Co., Ltd.'s (SZSE:300870) stock price dropped 8.0% last week; private companies would not be happy

Key Insights

• The considerable ownership by private companies in Shenzhen Honor Electronic indicates that they collectively have a greater say in management and business strategy
• A total of 2 investors have a majority stake in the company with 59% ownership
• 29% of Shenzhen Honor Electronic is held by insiders

Every investor in Shenzhen Honor Electronic Co., Ltd. (SZSE:300870) should be aware of the most powerful shareholder groups. The group holding the most number of shares in the company, around 34% to be precise, is private companies. In other words, the group stands to gain the most (or lose the most) from their investment into the company.

As a result, private companies as a group endured the highest losses last week after market cap fell by CN¥715m.

In the chart below, we zoom in on the different ownership groups of Shenzhen Honor Electronic.

See our latest analysis for Shenzhen Honor Electronic

What Does The Institutional Ownership Tell Us About Shenzhen Honor Electronic?

Many institutions measure their performance against an index that approximates the local market. So they usually pay more attention to companies that are included in major indices.

Shenzhen Honor Electronic already has institutions on the share registry. Indeed, they own a respectable stake in the company. This can indicate that the company has a certain degree of credibility in the investment community. However, it is best to be wary of relying on the supposed validation that comes with institutional investors. They too, get it wrong sometimes. It is not uncommon to see a big share price drop if two large institutional investors try to sell out of a stock at the same time. So it is worth checking the past earnings trajectory of Shenzhen Honor Electronic, (below). Of course, keep in mind that there are other factors to consider, too.

We note that hedge funds don't have a meaningful investment in Shenzhen Honor Electronic. Shenzhen Wangyuewang Investment Partnership Enterprise (Limited Partnership) is currently the company's largest shareholder with 29% of shares outstanding. For context, the second largest shareholder holds about 29% of the shares outstanding, followed by an ownership of 3.7% by the third-largest shareholder. Heqiu Wang, who is the second-largest shareholder, also happens to hold the title of Chief Executive Officer.

To make our study more interesting, we found that the top 2 shareholders have a majority ownership in the company, meaning that they are powerful enough to influence the decisions of the company.

Researching institutional ownership is a good way to gauge and filter a stock's expected performance. The same can be achieved by studying analyst sentiments. There is a little analyst coverage of the stock, but not much. So there is room for it to gain more coverage.

Insider Ownership Of Shenzhen Honor Electronic

The definition of company insiders can be subjective and does vary between jurisdictions. Our data reflects individual insiders, capturing board members at the very least. Company management run the business, but the CEO will answer to the board, even if he or she is a member of it.

Most consider insider ownership a positive because it can indicate the board is well aligned with other shareholders. However, on some occasions too much power is concentrated within this group.

Our most recent data indicates that insiders own a reasonable proportion of Shenzhen Honor Electronic Co., Ltd.. It is very interesting to see that insiders have a meaningful CN¥2.4b stake in this CN¥8.2b business. Most would be pleased to see the board is investing alongside them. You may wish to access this free chart showing recent trading by insiders.

General Public Ownership

The general public-- including retail investors -- own 30% stake in the company, and hence can't easily be ignored. While this size of ownership may not be enough to sway a policy decision in their favour, they can still make a collective impact on company policies.

Private Company Ownership

Our data indicates that Private Companies hold 34%, of the company's shares. Private companies may be related parties. Sometimes insiders have an interest in a public company through a holding in a private company, rather than in their own capacity as an individual. While it's hard to draw any broad stroke conclusions, it is worth noting as an area for further research.

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 2 warning signs with Shenzhen Honor Electronic , and understanding them should be part of your investment process.

Ultimately the future is most important. You can access this free report on analyst forecasts for the company.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.