Do Insiders Own Lots Of Shares In NetDragon Websoft Holdings Limited (HKG:777)?

Every investor in NetDragon Websoft Holdings Limited (HKG:777) should be aware of the most powerful shareholder groups. Institutions will often hold stock in bigger companies, and we expect to see insiders owning a noticeable percentage of the smaller ones. I quite like to see at least a little bit of insider ownership. As Charlie Munger said 'Show me the incentive and I will show you the outcome.

NetDragon Websoft Holdings isn't enormous, but it's not particularly small either. It has a market capitalization of HK$9.7b, which means it would generally expect to see some institutions on the share registry. Our analysis of the ownership of the company, below, shows that institutions are noticeable on the share registry. Let's take a closer look to see what the different types of shareholders can tell us about NetDragon Websoft Holdings.

Check out our latest analysis for NetDragon Websoft Holdings

What Does The Institutional Ownership Tell Us About NetDragon Websoft Holdings?

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.

NetDragon Websoft Holdings already has institutions on the share registry. Indeed, they own a respectable stake in the company. This suggests some credibility amongst professional investors. But we can't rely on that fact alone since institutions make bad investments sometimes, just like everyone does. 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 NetDragon Websoft Holdings' 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 NetDragon Websoft Holdings. Because actions speak louder than words, we consider it a good sign when insiders own a significant stake in a company. In NetDragon Websoft Holdings' case, its Top Key Executive, Dejian Liu, is the largest shareholder, holding 35% of shares outstanding. With 11% and 6.2% of the shares outstanding respectively, Accel Partners and Hui Zheng are the second and third largest shareholders. Interestingly, the third-largest shareholder, Hui Zheng is also a Member of the Board of Directors, again, indicating strong insider ownership amongst the company's top shareholders. Furthermore, CEO Luyuan Liu is the owner of 3.8% of the company's shares.

After doing some more digging, we found that the top 3 shareholders collectively control more than half of the company's shares, implying that they have considerable power to influence the company's decisions.

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. Quite a few analysts cover the stock, so you could look into forecast growth quite easily.

Insider Ownership Of NetDragon Websoft Holdings

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.

I generally consider insider ownership to be a good thing. However, on some occasions it makes it more difficult for other shareholders to hold the board accountable for decisions.

Our most recent data indicates that insiders own a reasonable proportion of NetDragon Websoft Holdings Limited. Insiders own HK$4.5b worth of shares in the HK$9.7b company. That's quite meaningful. Most would say this shows a good degree of alignment with shareholders, especially in a company of this size. You can click here to see if those insiders have been buying or selling.

General Public Ownership

The general public, with a 32% stake in the company, will not easily be ignored. While this group can't necessarily call the shots, it can certainly have a real influence on how the company is run.

Private Equity Ownership

Private equity firms hold a 11% stake in NetDragon Websoft Holdings. 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.

Next Steps:

It's always worth thinking about the different groups who own shares in a company. But to understand NetDragon Websoft Holdings better, we need to consider many other factors. Consider for instance, the ever-present spectre of investment risk. We've identified 3 warning signs with NetDragon Websoft Holdings , and understanding them should be part of your investment process.

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. 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.
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