Hengong Precision Equipment Co., Ltd.'s (SZSE:301261) market cap surged CN¥426m last week, private companies who have a lot riding on the company were rewarded

Key Insights

• Hengong Precision Equipment's significant private companies ownership suggests that the key decisions are influenced by shareholders from the larger public
• Hebei Jiegong Enterprise Management Co., Ltd. owns 56% of the company
• Ownership research, combined with past performance data can help provide a good understanding of opportunities in a stock

To get a sense of who is truly in control of Hengong Precision Equipment Co., Ltd. (SZSE:301261), it is important to understand the ownership structure of the business. With 59% stake, private companies 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, private companies were the biggest beneficiaries of last week’s 16% gain.

Let's delve deeper into each type of owner of Hengong Precision Equipment, beginning with the chart below.

Check out our latest analysis for Hengong Precision Equipment

What Does The Institutional Ownership Tell Us About Hengong Precision Equipment?

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.

We can see that Hengong Precision Equipment does have institutional investors; and they hold a good portion of the company's stock. 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. 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 Hengong Precision Equipment, (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 Hengong Precision Equipment. Hebei Jiegong Enterprise Management Co., Ltd. is currently the company's largest shareholder with 56% of shares outstanding. This essentially means that they have extensive influence, if not outright control, over the future of the corporation. In comparison, the second and third largest shareholders hold about 9.0% and 2.3% of the stock. Furthermore, CEO Zhiyong Wei is the owner of 0.6% of the company's shares.

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 Hengong Precision Equipment

While the precise definition of an insider can be subjective, almost everyone considers board members to be insiders. Management ultimately answers to the board. However, it is not uncommon for managers to be executive board members, especially if they are a founder or the CEO.

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 most recent data indicates that insiders own less than 1% of Hengong Precision Equipment Co., Ltd.. We do note, however, it is possible insiders have an indirect interest through a private company or other corporate structure. It appears that the board holds about CN¥18m worth of stock. This compares to a market capitalization of CN¥3.1b. We generally like to see a board more invested. However it might be worth checking if those insiders have been buying.

General Public Ownership

The general public-- including retail investors -- own 21% 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 Equity Ownership

Private equity firms hold a 9.0% stake in Hengong Precision Equipment. This suggests they can be influential in key policy decisions. Some might like this, because private equity are sometimes activists who hold management accountable. But other times, private equity is selling out, having taking the company public.

Private Company Ownership

It seems that Private Companies own 59%, of the Hengong Precision Equipment 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:

It's always worth thinking about the different groups who own shares in a company. But to understand Hengong Precision Equipment better, we need to consider many other factors. Take risks for example - Hengong Precision Equipment has 3 warning signs (and 2 which are a bit concerning) we think you should know about.

If you are like me, you may want to think about whether this company will grow or shrink. Luckily, you can check this free report showing analyst forecasts for its future.

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.