Why CEFC Hong Kong Financial Investment Company Limited's (HKG:1520) Ownership Structure Is Important

In this article, I'm going to take a look at CEFC Hong Kong Financial Investment Company Limited’s (HKG:1520) latest ownership structure, a non-fundamental factor which is important, but remains a less discussed subject among investors. A company's ownership structure is often linked to its share performance in both the long- and short-term. Differences in ownership structure of companies can have a profound effect on how management's incentives are aligned with shareholder returns, and whether they adhere to corporate governance best practices. Although this is an important factor for long-term investors, many investors can also be impacted by institutional presence and their high-volume trading. Therefore, it is beneficial for us to examine 1520's ownership structure in more detail.

Check out our latest analysis for CEFC Hong Kong Financial Investment

Institutional Ownership

Due to the big order sizes of institutional investors, a company's shares can experience large, one-sided momentum, driven by high volume of shares removed from, or injected into, the market. With hardly any institutional ownership, 1520 stock poses limited concern relating to the effect institutional block trades have on its stock price.

Insider Ownership

An important group of shareholders are company insiders. Insider ownership has to do more with how the company is managed and less to do with the direct impact of the magnitude of shares trading on the market. 1520 insiders hold a significant stake of 20.17% in the company. This level of insider ownership has been found to have a negative impact on companies with consistently low PE ratios (underperformers), while it has been positive in the case of high PE ratio firms (outperformers). Another aspect of insider ownership is to learn about their recent transactions. Insiders buying company shares can be a positive indicator of future performance, but a selling decision can simply be driven by personal financial needs.

General Public Ownership

The general public holds a substantial 79.78% stake in 1520, making it a highly popular stock among retail investors. This level of ownership gives retail investors the power to sway key policy decisions such as board composition, executive compensation, and potential acquisitions. This is a positive sign for an investor who wants to be involved in key decision-making of the company.

Next Steps:

With a low level of institutional ownership, investors in 1520 need not worry about non-fundamental factors such as ownership structure causing large impact on stock prices. However, if you are building an investment case for 1520, ownership structure alone should not dictate your decision to buy or sell the stock. Rather, you should be looking at fundamental drivers such as CEFC Hong Kong Financial Investment's past track record and financial health. I highly recommend you to complete your research by taking a look at the following:

1. Financial Health: Is 1520’s operations financially sustainable? Balance sheets can be hard to analyze, which is why we’ve done it for you. Check out our financial health checks here.
2. Past Track Record: Has 1520 been consistently performing well irrespective of the ups and downs in the market? Go into more detail in the past performance analysis and take a look at the free visual representations of 1520's historicals for more clarity.
3. Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.

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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Simply Wall St analyst Simply Wall St and Simply Wall St have no position in any of the companies mentioned. This article 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.