Diamond Biofund Inc.'s (TWSE:6901) last week's 7.1% decline must have disappointed public companies who have a significant stake

Key Insights

• Significant control over Diamond Biofund by public companies implies that the general public has more power to influence management and governance-related decisions
• The top 3 shareholders own 52% of the company
• Insider ownership in Diamond Biofund is 25%

Every investor in Diamond Biofund Inc. (TWSE:6901) should be aware of the most powerful shareholder groups. The group holding the most number of shares in the company, around 39% to be precise, is public companies. Put another way, the group faces the maximum upside potential (or downside risk).

While insiders, who own 25% shares weren’t spared from last week’s NT$2.0b market cap drop, public companies as a group suffered the maximum losses

In the chart below, we zoom in on the different ownership groups of Diamond Biofund.

Check out our latest analysis for Diamond Biofund

What Does The Institutional Ownership Tell Us About Diamond Biofund?

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 Diamond Biofund 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 Diamond Biofund's historic earnings and revenue below, but keep in mind there's always more to the story.

Hedge funds don't have many shares in Diamond Biofund. Microbio Co., Ltd. is currently the largest shareholder, with 25% of shares outstanding. For context, the second largest shareholder holds about 14% of the shares outstanding, followed by an ownership of 13% by the third-largest shareholder.

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.

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. Our information suggests that there isn't any analyst coverage of the stock, so it is probably little known.

Insider Ownership Of Diamond Biofund

The definition of an insider can differ slightly between different countries, but members of the board of directors always count. Company management run the business, but the CEO will answer to the board, even if he or she is a member of it.

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 most recent data indicates that insiders own a reasonable proportion of Diamond Biofund Inc.. It has a market capitalization of just NT$27b, and insiders have NT$6.8b worth of shares in their own names. It is great to see insiders so invested in the business. It might be worth checking if those insiders have been buying recently.

General Public Ownership

The general public, who are usually individual investors, hold a 16% stake in Diamond Biofund. 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 8.5%, 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

Our data indicates that Private Companies hold 5.8%, of the company's shares. It might be worth looking deeper into this. If related parties, such as insiders, have an interest in one of these private companies, that should be disclosed in the annual report. Private companies may also have a strategic interest in the company.

Public Company Ownership

Public companies currently own 39% of Diamond Biofund stock. 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:

While it is well worth considering the different groups that own a company, there are other factors that are even more important. For instance, we've identified 2 warning signs for Diamond Biofund that you should be aware of.

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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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.