Hi-Lex Corporation's (TSE:7279) market cap dropped JP¥14b last week; individual investors who hold 37% were hit as were institutions

Key Insights

• Significant control over Hi-Lex by retail investors implies that the general public has more power to influence management and governance-related decisions
• 50% of the business is held by the top 9 shareholders
• Institutions own 27% of Hi-Lex

To get a sense of who is truly in control of Hi-Lex Corporation (TSE:7279), it is important to understand the ownership structure of the business. And the group that holds the biggest piece of the pie are retail investors with 37% ownership. In other words, the group stands to gain the most (or lose the most) from their investment into the company.

Following a 26% decrease in the stock price last week, retail investors suffered the most losses, but institutions who own 27% stock also took a hit.

In the chart below, we zoom in on the different ownership groups of Hi-Lex.

Check out our latest analysis for Hi-Lex

What Does The Institutional Ownership Tell Us About Hi-Lex?

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.

We can see that Hi-Lex does have institutional investors; and they hold a good portion of the company's stock. 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 Hi-Lex's 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 Hi-Lex. Our data shows that Teraura Kosan Co., Ltd. is the largest shareholder with 27% of shares outstanding. With 4.1% and 3.8% of the shares outstanding respectively, Teraura Scholarship Foundation, Endowment Arm and FMR LLC are the second and third largest shareholders.

We also observed that the top 9 shareholders account for more than half of the share register, with a few smaller shareholders to balance the interests of the larger ones to a certain extent.

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. We're not picking up on any analyst coverage of the stock at the moment, so the company is unlikely to be widely held.

Insider Ownership Of Hi-Lex

While the precise definition of an insider can be subjective, almost everyone considers board members to be insiders. Management ultimately answers to the board. However, it is not uncommon for managers to be executive board members, especially if they are a founder or the CEO.

Insider ownership is positive when it signals leadership are thinking like the true owners of the company. However, high insider ownership can also give immense power to a small group within the company. This can be negative in some circumstances.

Our information suggests that Hi-Lex Corporation insiders own under 1% of the company. However, it's possible that insiders might have an indirect interest through a more complex structure. It has a market capitalization of just JP¥40b, and the board has only JP¥85m worth of shares in their own names. Many investors in smaller companies prefer to see the board more heavily invested. You can click here to see if those insiders have been buying or selling.

General Public Ownership

With a 37% ownership, the general public, mostly comprising of individual investors, have some degree of sway over Hi-Lex. While this size of ownership may not be enough to sway a policy decision in their favour, they can still make a collective impact on company policies.

Private Company Ownership

Our data indicates that Private Companies hold 27%, of the company's shares. 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.

Public Company Ownership

We can see that public companies hold 7.2% of the Hi-Lex shares on issue. It's hard to say for sure but this suggests they have entwined business interests. This might be a strategic stake, so it's worth watching this space for changes in ownership.

Next Steps:

It's always worth thinking about the different groups who own shares in a company. But to understand Hi-Lex better, we need to consider many other factors. For instance, we've identified 3 warning signs for Hi-Lex (1 can't be ignored) that you should be aware of.

Of course this may not be the best stock to buy. So take a peek at this free 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.

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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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com