Private companies in Huafu Fashion Co., Ltd. (SZSE:002042) are its biggest bettors, and their bets paid off as stock gained 6.1% last week

Key Insights

• The considerable ownership by private companies in Huafu Fashion indicates that they collectively have a greater say in management and business strategy
• 51% of the business is held by the top 6 shareholders
• Institutional ownership in Huafu Fashion is 11%

Every investor in Huafu Fashion Co., Ltd. (SZSE:002042) should be aware of the most powerful shareholder groups. We can see that private companies own the lion's share in the company with 46% ownership. In other words, the group stands to gain the most (or lose the most) from their investment into the company.

Clearly, private companies benefitted the most after the company's market cap rose by CN¥377m last week.

In the chart below, we zoom in on the different ownership groups of Huafu Fashion.

See our latest analysis for Huafu Fashion

What Does The Institutional Ownership Tell Us About Huafu Fashion?

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.

We can see that Huafu Fashion does have institutional investors; and they hold a good portion of the company's stock. 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. When multiple institutions own a stock, there's always a risk that they are in a 'crowded trade'. When such a trade goes wrong, multiple parties may compete to sell stock fast. This risk is higher in a company without a history of growth. You can see Huafu Fashion's historic earnings and revenue below, but keep in mind there's always more to the story.

We note that hedge funds don't have a meaningful investment in Huafu Fashion. Looking at our data, we can see that the largest shareholder is Huafu Holding Co., Ltd. with 31% of shares outstanding. Meanwhile, the second and third largest shareholders, hold 7.9% and 5.0%, of the shares outstanding, respectively.

We also observed that the top 6 shareholders account for more than half of the share register, with a few smaller shareholders to balance the interests of the larger ones to a certain extent.

While studying institutional ownership for a company can add value to your research, it is also a good practice to research analyst recommendations to get a deeper understand of a stock's expected performance. Quite a few analysts cover the stock, so you could look into forecast growth quite easily.

Insider Ownership Of Huafu Fashion

The definition of an insider can differ slightly between different countries, but members of the board of directors always count. The company management answer to the board and the latter should represent the interests of shareholders. Notably, sometimes top-level managers are on the board themselves.

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.

Our data cannot confirm that board members are holding shares personally. It is unusual not to have at least some personal holdings by board members, so our data might be flawed. A good next step would be to check how much the CEO is paid.

General Public Ownership

The general public-- including retail investors -- own 43% stake in the company, and hence can't easily be ignored. This size of ownership, while considerable, may not be enough to change company policy if the decision is not in sync with other large shareholders.

Private Company Ownership

Our data indicates that Private Companies hold 46%, of the company's shares. It's hard to draw any conclusions from this fact alone, so its worth looking into who owns those private companies. Sometimes insiders or other related parties have an interest in shares in a public company through a separate private company.

Next Steps:

It's always worth thinking about the different groups who own shares in a company. But to understand Huafu Fashion better, we need to consider many other factors. Like risks, for instance. Every company has them, and we've spotted 3 warning signs for Huafu Fashion (of which 1 is a bit concerning!) you should know about.

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.

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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.