Could The Perfect Optronics Limited (HKG:8311) Ownership Structure Tell Us Something Useful?

Every investor in Perfect Optronics Limited (HKG:8311) should be aware of the most powerful shareholder groups. Insiders often own a large chunk of younger, smaller, companies while huge companies tend to have institutions as shareholders. Warren Buffett said that he likes "a business with enduring competitive advantages that is run by able and owner-oriented people." So it's nice to see some insider ownership, because it may suggest that management is owner-oriented.

With a market capitalization of HK$801m, Perfect Optronics is a small cap stock, so it might not be well known by many institutional investors. Taking a look at our data on the ownership groups (below), it seems that institutions don't own many shares in the company. Let's take a closer look to see what the different types of shareholders can tell us about Perfect Optronics.

View our latest analysis for Perfect Optronics

What Does The Lack Of Institutional Ownership Tell Us About Perfect Optronics?

We don't tend to see institutional investors holding stock of companies that are very risky, thinly traded, or very small. Though we do sometimes see large companies without institutions on the register, it's not particularly common.

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. Perfect Optronics' earnings and revenue track record (below) may not be compelling to institutional investors -- or they simply might not have looked at the business closely.

Hedge funds don't have many shares in Perfect Optronics. Looking at our data, we can see that the largest shareholder is the CEO Wai Tak Cheng with 62% of shares outstanding. This implies that they possess majority interests and have significant control over the company. Investors usually consider it a good sign when the company leadership has such a significant stake, as this is widely perceived to increase the chance that the management will act in the best interests of the company. For context, the second largest shareholder holds about 0.3% of the shares outstanding, followed by an ownership of 0.02% by the third-largest shareholder. Interestingly, the third-largest shareholder, Man Wai Kan is also a Chairman of the Board, again, indicating strong insider ownership amongst the company's top shareholders.

While it makes sense to study institutional ownership data for a company, it also makes sense to study analyst sentiments to know which way the wind is blowing. As far I can tell there isn't analyst coverage of the company, so it is probably flying under the radar.

Insider Ownership Of Perfect Optronics

While the precise definition of an insider can be subjective, almost everyone considers board members to be insiders. Company management run the business, but the CEO will answer to the board, even if he or she is a member of it.

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 information suggests that insiders own more than half of Perfect Optronics Limited. This gives them effective control of the company. So they have a HK$500m stake in this HK$801m business. It is good to see this level of investment. You can check here to see if those insiders have been buying recently.

General Public Ownership

The general public, with a 37% stake in the company, will not 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.

Next Steps:

It's always worth thinking about the different groups who own shares in a company. But to understand Perfect Optronics better, we need to consider many other factors. Be aware that Perfect Optronics is showing 2 warning signs in our investment analysis , and 1 of those is concerning...

Of course this may not be the best stock to buy. Therefore, you may wish to see our free collection of interesting prospects boasting favorable financials.

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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