Lihuayi Weiyuan Chemical Co., Ltd.'s (SHSE:600955) market cap dropped CN¥418m last week; Individual investors bore the brunt

Key Insights

• The considerable ownership by individual investors in Lihuayi Weiyuan Chemical indicates that they collectively have a greater say in management and business strategy
• A total of 5 investors have a majority stake in the company with 54% ownership
• Institutions own 11% of Lihuayi Weiyuan Chemical

If you want to know who really controls Lihuayi Weiyuan Chemical Co., Ltd. (SHSE:600955), then you'll have to look at the makeup of its share registry. We can see that individual investors own the lion's share in the company with 32% ownership. Put another way, the group faces the maximum upside potential (or downside risk).

As market cap fell to CN¥9.3b last week, individual investors would have faced the highest losses than any other shareholder groups of the company.

In the chart below, we zoom in on the different ownership groups of Lihuayi Weiyuan Chemical.

View our latest analysis for Lihuayi Weiyuan Chemical

What Does The Institutional Ownership Tell Us About Lihuayi Weiyuan Chemical?

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.

As you can see, institutional investors have a fair amount of stake in Lihuayi Weiyuan Chemical. This implies the analysts working for those institutions have looked at the stock and they like it. But just like anyone else, they could be wrong. 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 Lihuayi Weiyuan Chemical's historic earnings and revenue below, but keep in mind there's always more to the story.

Hedge funds don't have many shares in Lihuayi Weiyuan Chemical. The company's largest shareholder is Weiyuan Holdings Co., Ltd., with ownership of 20%. In comparison, the second and third largest shareholders hold about 11% and 9.9% of the stock. Furthermore, CEO Xiumin Li is the owner of 0.6% of the company's shares.

To make our study more interesting, we found that the top 5 shareholders control more than half of the company which implies that this group has considerable sway over the company's decision-making.

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. 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 Lihuayi Weiyuan Chemical

The definition of an insider can differ slightly between different countries, but members of the board of directors always count. 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.

We can report that insiders do own shares in Lihuayi Weiyuan Chemical Co., Ltd.. It is a pretty big company, so it is generally a positive to see some potentially meaningful alignment. In this case, they own around CN¥296m worth of shares (at current prices). If you would like to explore the question of insider alignment, you can click here to see if insiders have been buying or selling.

General Public Ownership

The general public, who are usually individual investors, hold a 32% stake in Lihuayi Weiyuan Chemical. 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 Equity Ownership

Private equity firms hold a 30% stake in Lihuayi Weiyuan Chemical. This suggests they can be influential in key policy decisions. Some investors might be encouraged by this, since private equity are sometimes able to encourage strategies that help the market see the value in the company. Alternatively, those holders might be exiting the investment after taking it public.

Private Company Ownership

Our data indicates that Private Companies hold 23%, 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 Lihuayi Weiyuan Chemical (at least 1 which can't be ignored) , and understanding them should be part of your investment process.

If you would prefer discover what analysts are predicting in terms of future growth, do not miss this free report on analyst forecasts.

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.