The recent 10.0% gain must have brightened Top Key Executive Zhi Tian Lai's week, Zhongzhi Pharmaceutical Holdings Limited's (HKG:3737) most bullish insider

Key Insights

• Significant insider control over Zhongzhi Pharmaceutical Holdings implies vested interests in company growth
• The largest shareholder of the company is Zhi Tian Lai with a 60% stake
• Past performance of a company along with ownership data serve to give a strong idea about prospects for a business

To get a sense of who is truly in control of Zhongzhi Pharmaceutical Holdings Limited (HKG:3737), it is important to understand the ownership structure of the business. The group holding the most number of shares in the company, around 66% to be precise, is individual insiders. In other words, the group stands to gain the most (or lose the most) from their investment into the company.

As a result, insiders were the biggest beneficiaries of last week’s 10.0% gain.

In the chart below, we zoom in on the different ownership groups of Zhongzhi Pharmaceutical Holdings.

Check out our latest analysis for Zhongzhi Pharmaceutical Holdings

What Does The Lack Of Institutional Ownership Tell Us About Zhongzhi Pharmaceutical Holdings?

Institutional investors often avoid companies that are too small, too illiquid or too risky for their tastes. But it's unusual to see larger companies without any institutional investors.

There are multiple explanations for why institutions don't own a stock. The most common is that the company is too small relative to funds under management, so the institution does not bother to look closely at the company. On the other hand, it's always possible that professional investors are avoiding a company because they don't think it's the best place for their money. Institutional investors may not find the historic growth of the business impressive, or there might be other factors at play. You can see the past revenue performance of Zhongzhi Pharmaceutical Holdings, for yourself, below.

Hedge funds don't have many shares in Zhongzhi Pharmaceutical Holdings. From our data, we infer that the largest shareholder is Zhi Tian Lai (who also holds the title of Top Key Executive) with 60% of shares outstanding. Its usually considered a good sign when insiders own a significant number of shares in the company, and in this case, we're glad to see a company insider play the role of a key stakeholder. With 9.5% and 4.9% of the shares outstanding respectively, Shanghai Novich Positioning Investment Management Co., Ltd. and Li Xia Jiang are the second and third largest shareholders. Interestingly, the third-largest shareholder, Li Xia Jiang is also a Member of the Board of Directors, again, indicating strong insider ownership amongst the company's top shareholders. In addition, we found that Ying Feng Lai, the CEO has 0.7% of the shares allocated to their name.

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. As far as we can tell there isn't analyst coverage of the company, so it is probably flying under the radar.

Insider Ownership Of Zhongzhi Pharmaceutical Holdings

While the precise definition of an insider can be subjective, almost everyone considers board members to be insiders. 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.

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.

It seems that insiders own more than half the Zhongzhi Pharmaceutical Holdings Limited stock. This gives them a lot of power. That means they own HK$568m worth of shares in the HK$855m company. That's quite meaningful. Most would argue this is a positive, showing strong alignment with shareholders. You can click here to see if those insiders have been buying or selling.

General Public Ownership

With a 24% ownership, the general public, mostly comprising of individual investors, have some degree of sway over Zhongzhi Pharmaceutical Holdings. 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 9.5%, private equity firms are in a position to play a role in shaping corporate strategy with a focus on value creation. Sometimes we see private equity stick around for the long term, but generally speaking they have a shorter investment horizon and -- as the name suggests -- don't invest in public companies much. After some time they may look to sell and redeploy capital elsewhere.

Next Steps:

It's always worth thinking about the different groups who own shares in a company. But to understand Zhongzhi Pharmaceutical Holdings better, we need to consider many other factors. Consider for instance, the ever-present spectre of investment risk. We've identified 1 warning sign with Zhongzhi Pharmaceutical Holdings , and understanding them should be part of your investment process.

Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of interesting companies.

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.