Dongfang Electric Corporation Limited's (HKG:1072) stock price dropped 4.8% last week; private companies would not be happy

Key Insights

• Dongfang Electric's significant private companies ownership suggests that the key decisions are influenced by shareholders from the larger public
• The largest shareholder of the company is DongFang Electric Corporation with a 56% stake
• Ownership research along with analyst forecasts data help provide a good understanding of opportunities in a stock

Every investor in Dongfang Electric Corporation Limited (HKG:1072) should be aware of the most powerful shareholder groups. The group holding the most number of shares in the company, around 56% 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 HK$1.5b.

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

See our latest analysis for Dongfang Electric

What Does The Institutional Ownership Tell Us About Dongfang Electric?

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.

Dongfang Electric 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. If multiple institutions change their view on a stock at the same time, you could see the share price drop fast. It's therefore worth looking at Dongfang Electric's earnings history below. Of course, the future is what really matters.

Dongfang Electric is not owned by hedge funds. Looking at our data, we can see that the largest shareholder is DongFang Electric Corporation with 56% of shares outstanding. With such a huge stake in the ownership, we infer that they have significant control of the future of the company. For context, the second largest shareholder holds about 0.7% of the shares outstanding, followed by an ownership of 0.4% by the third-largest shareholder.

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. There are a reasonable number of analysts covering the stock, so it might be useful to find out their aggregate view on the future.

Insider Ownership Of Dongfang Electric

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. 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 suggests that insiders own under 1% of Dongfang Electric Corporation Limited in their own names. We do note, however, it is possible insiders have an indirect interest through a private company or other corporate structure. It's a big company, so even a small proportional interest can create alignment between the board and shareholders. In this case insiders own HK$146m worth of shares. It is always good to see at least some insider ownership, 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 34% stake in Dongfang Electric. 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

It seems that Private Companies own 56%, of the Dongfang Electric stock. 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. To that end, you should be aware of the 1 warning sign we've spotted with Dongfang Electric .

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.

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.