Private companies who have a significant stake must be disappointed along with institutions after Luye Pharma Group Ltd.'s (HKG:2186) market cap dropped by HK$527m

Key Insights

• Significant control over Luye Pharma Group by private companies implies that the general public has more power to influence management and governance-related decisions
• A total of 3 investors have a majority stake in the company with 56% ownership
• Institutional ownership in Luye Pharma Group is 27%

To get a sense of who is truly in control of Luye Pharma Group Ltd. (HKG:2186), it is important to understand the ownership structure of the business. And the group that holds the biggest piece of the pie are private companies with 33% ownership. Put another way, the group faces the maximum upside potential (or downside risk).

While institutions, who own 27% shares weren’t spared from last week’s HK$527m market cap drop, private companies as a group suffered the maximum losses

In the chart below, we zoom in on the different ownership groups of Luye Pharma Group.

View our latest analysis for Luye Pharma Group

What Does The Institutional Ownership Tell Us About Luye Pharma Group?

Institutions typically measure themselves against a benchmark when reporting to their own investors, so they often become more enthusiastic about a stock once it's included in a major index. We would expect most companies to have some institutions on the register, especially if they are growing.

As you can see, institutional investors have a fair amount of stake in Luye Pharma Group. 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 Luye Pharma Group's earnings history below. Of course, the future is what really matters.

Luye Pharma Group is not owned by hedge funds. Luye Pharma Holdings Ltd. is currently the largest shareholder, with 33% of shares outstanding. Hillhouse Investment Management, Ltd. is the second largest shareholder owning 15% of common stock, and Zhonggeng Fund Management Co., Ltd. holds about 7.7% of the company stock.

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. 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 Luye Pharma Group

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

Most consider insider ownership a positive because it can indicate the board is well aligned with other shareholders. However, on some occasions too much power is concentrated within this group.

Our data cannot confirm that board members are holding shares personally. We do not see this low level of ownership often, and it is possible our data is imperfect. But shareholders can click here to check if insiders have been selling stock.

General Public Ownership

The general public-- including retail investors -- own 25% stake in the company, and hence can't easily be ignored. 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

With an ownership of 15%, private equity firms are in a position to play a role in shaping corporate strategy with a focus on value creation. 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

We can see that Private Companies own 33%, of the shares on issue. 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.

I always like to check for a history of revenue growth. You can too, by accessing this free chart of historic revenue and earnings in this detailed graph.

But ultimately it is the future, not the past, that will determine how well the owners of this business will do. Therefore we think it advisable to take a look at this free report showing whether analysts are predicting a brighter 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.