In this article, I’m going to take a look at Hovnanian Enterprises Inc’s (NYSE:HOV) latest ownership structure, a non-fundamental factor which is important, but remains a less discussed subject among investors. The impact of a company’s ownership structure affects both its short- and long-term performance. Differences in ownership structure of companies can have a profound effect on how management’s incentives are aligned with shareholder returns, and whether they adhere to corporate governance best practices. Although this is an important factor for long-term investors, many investors can also be impacted by institutional presence and their high-volume trading. Therefore, it is beneficial for us to examine HOV’s ownership structure in more detail.
Institutional OwnershipHOV’s 41.16% institutional ownership seems enough to cause large share price movements in the case of significant share sell-off or acquisitions by institutions, particularly when there is a low level of public shares available on the market to trade. However, as not all institutions are alike, such high volatility events, especially in the short-term, have been more frequently linked to active market participants like hedge funds. For HOV shareholders, the potential of this type of share price volatility shouldn’t be as concerning as hedge fund ownership is is not significant,indicating few chances of such sudden price moves. While that hardly seems concerning, I will explore further into HOV’s ownership type to find out how it can affect the company’s investment profile.
Insider OwnershipI find insiders are an important group of stakeholders, who are directly involved in making key decisions related to the use of capital. In essence, insider ownership is more about the alignment of shareholders’ interests with the management. HOV insiders hold a significant stake of 12.81% in the company. This level of insider ownership has been found to have a negative impact on companies with consistently low PE ratios (underperformers), while it has been positive in the case of high PE ratio firms (outperformers). It may be interesting to take a look at what company insiders have been doing with their holdings lately. Insiders buying company shares can be a positive indicator of future performance, but a selling decision can simply be driven by personal financial needs.
General Public OwnershipThe general public holds a substantial 39.48% stake in HOV, making it a highly popular stock among retail investors. 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.
Private Company OwnershipAnother important group of owners for potential investors in HOV are private companies that hold a stake of 6.54% in HOV. These are companies that are mainly invested due to their strategic interests or are incentivized by reaping capital gains on investments their shareholdings. This kind of ownership, if predominantly strategic, can give these companies a significant power to affect HOV’s business strategy. Thus, potential investors should look into these business relations and check how it can impact long-term shareholder returns.
HOV’s considerably high level of institutional ownership calls for further analysis into its margin of safety. This will allow investors to reduce the impact of non-fundamental factors, such as volatile block trading impact on their portfolio value. However, ownership structure should not be the only determining factor when you’re building an investment thesis for HOV. Rather, you should be looking at fundamental drivers such as the intrinsic valuation, which is a key driver of Hovnanian Enterprises’s share price. I highly recommend you to complete your research by taking a look at the following:
- Future Outlook: What are well-informed industry analysts predicting for HOV’s future growth? Take a look at our free research report of analyst consensus for HOV’s outlook.
- Past Track Record: Has HOV 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 HOV’s historicals for more clarity.
- 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.
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.
To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at email@example.com.