Sumitomo Pharma Co., Ltd.'s (TSE:4506) market cap dropped JP¥19b last week; Public companies bore the brunt

Key Insights

• The considerable ownership by public companies in Sumitomo Pharma indicates that they collectively have a greater say in management and business strategy
• The largest shareholder of the company is Sumitomo Chemical Company, Limited with a 52% stake
• 18% of Sumitomo Pharma is held by Institutions

To get a sense of who is truly in control of Sumitomo Pharma Co., Ltd. (TSE:4506), it is important to understand the ownership structure of the business. We can see that public companies own the lion's share in the company with 54% ownership. That is, the group stands to benefit the most if the stock rises (or lose the most if there is a downturn).

And last week, public companies endured the biggest losses as the stock fell by 5.9%.

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

View our latest analysis for Sumitomo Pharma

What Does The Institutional Ownership Tell Us About Sumitomo Pharma?

Institutional investors commonly compare their own returns to the returns of a commonly followed index. So they generally do consider buying larger companies that are included in the relevant benchmark index.

We can see that Sumitomo Pharma 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. It is not uncommon to see a big share price drop if two large institutional investors try to sell out of a stock at the same time. So it is worth checking the past earnings trajectory of Sumitomo Pharma, (below). Of course, keep in mind that there are other factors to consider, too.

Hedge funds don't have many shares in Sumitomo Pharma. The company's largest shareholder is Sumitomo Chemical Company, Limited, with ownership of 52%. This implies that they have majority interest control of the future of the company. Meanwhile, the second and third largest shareholders, hold 3.6% and 1.9%, of the shares outstanding, respectively.

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 plenty of analysts covering the stock, so it might be worth seeing what they are forecasting, too.

Insider Ownership Of Sumitomo Pharma

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.

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 Sumitomo Pharma Co., Ltd. insiders own under 1% of the company. Keep in mind that it's a big company, and the insiders own JP¥165m worth of shares. The absolute value might be more important than the proportional share. It is always good to see at least some insider ownership, but it might be worth checking if those insiders have been selling.

General Public Ownership

With a 28% ownership, the general public, mostly comprising of individual investors, have some degree of sway over Sumitomo Pharma. 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.

Public Company Ownership

We can see that public companies hold 54% of the Sumitomo Pharma shares on issue. We can't be certain but it is quite possible this is a strategic stake. The businesses may be similar, or work together.

Next Steps:

I find it very interesting to look at who exactly owns a company. But to truly gain insight, we need to consider other information, too. Case in point: We've spotted 1 warning sign for Sumitomo Pharma you should be aware of.

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. 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.