Today, I will be analyzing Comstock Holding Companies Inc’s (NASDAQ:CHCI) recent ownership structure, an important but not-so-popular subject among individual investors. A company’s ownership structure is often linked to its share performance in both the long- and short-term. If an activist institution invests the same amount of capital in a stock as a passive long-term pension fund, the implications are potentially different for key corporate financing decisions such as the use of excess cash or the source of financing. While these are more of a long-term investor’s concern, short-term investors may find the impact of institutional trading overwhelming enough to lose out on what could be a potential opportunity. Therefore, it is beneficial for us to examine CHCI’s ownership structure in more detail.View our latest analysis for Comstock Holding Companies
Institutional OwnershipDue to the big order sizes of institutional investors, a company’s shares can experience large, one-sided momentum, driven by high volume of shares removed from, or injected into, the market. With a not-so-big institutional ownership of 2.22%, CHCI is not too exposed to price volatility that may arise from institutional trading. But investors should also check whether hedge funds, mostly active investors with a short-term horizon, have a significant stake. They own 7.91% of CHCI’s outstanding shares, enough to cause a spike in volatility, at least in the short-term. However, I would also examine the rest of its ownership structure in more detail to determine how the company’s major shareholders can affect its investment case.
Insider OwnershipAnother important group of shareholders are company insiders. Insider ownership has to do more with how the company is managed and less to do with the direct impact of the magnitude of shares trading on the market. A major group of owners of CHCI is individual insiders, sitting with a hefty 48.12% stake in the company. Broadly, insider ownership of this level has been found to negatively affect companies with consistently low PE ratio (underperforming). And a positive impact has been seen on companies with a high PE ratio (outperforming). It’s also interesting to learn what CHCI insiders have been doing with their shareholdings lately. Insider buying may be a sign of upbeat future expectations, however, selling doesn’t necessarily mean the opposite as insiders may be motivated by their personal financial needs.
General Public OwnershipA substantial ownership of 41.74% in CHCI is held by the general public. With this size of ownership, retail investors can collectively play a role in major company policies that affect shareholders returns, including executive remuneration and the appointment of directors. They can also exercise the power to decline an acquisition or merger that may not improve profitability.
What this means for you:
Although CHCI has a low level of overall institutional ownership, active hedge funds still have a significant stake in the company. This level of ownership is a non-fundamental factor that can impact stock prices in the short-term. A factor to consider is whether CHCI offers enough margin of safety compared to its intrinsic value. However, ownership structure should not be the only focus of your research when constructing an investment thesis around CHCI. Instead, you should be evaluating company-specific factors such as the intrinsic valuation, which is a key driver of Comstock Holding Companies’s share price. I urge you to complete your research by taking a look at the following:
- 1. Financial Health: Is CHCI’s operations financially sustainable? Balance sheets can be hard to analyze, which is why we’ve done it for you. Check out our financial health checks here.
- 2. Past Track Record: Has CHCI been consistently performing well irrespective of the ups and downs in the market? Go into more detail in the past performance analysis and take a look at the free visual representations of CHCI’s historicals for more clarity.
- 3. Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.