Is Castle Biosciences, Inc. (NASDAQ:CSTL) Popular Amongst Insiders?

By
Simply Wall St
Published
January 09, 2021
NasdaqGM:CSTL

If you want to know who really controls Castle Biosciences, Inc. (NASDAQ:CSTL), then you'll have to look at the makeup of its share registry. Institutions often own shares in more established companies, while it's not unusual to see insiders own a fair bit of smaller companies. I quite like to see at least a little bit of insider ownership. As Charlie Munger said 'Show me the incentive and I will show you the outcome.

Castle Biosciences has a market capitalization of US$1.9b, so we would expect some institutional investors to have noticed the stock. Our analysis of the ownership of the company, below, shows that institutional investors have bought into the company. We can zoom in on the different ownership groups, to learn more about Castle Biosciences.

See our latest analysis for Castle Biosciences

ownership-breakdown
NasdaqGM:CSTL Ownership Breakdown January 9th 2021

What Does The Institutional Ownership Tell Us About Castle Biosciences?

Institutions typically measure themselves against a benchmark when reporting to their own investors, so they often become more enthusiastic about a stock once it's included in a major index. We would expect most companies to have some institutions on the register, especially if they are growing.

We can see that Castle Biosciences does have institutional investors; and they hold a good portion of the company's stock. This can indicate that the company has a certain degree of credibility in the investment community. However, it is best to be wary of relying on the supposed validation that comes with institutional investors. They too, get it wrong sometimes. 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 Castle Biosciences' historic earnings and revenue below, but keep in mind there's always more to the story.

earnings-and-revenue-growth
NasdaqGM:CSTL Earnings and Revenue Growth January 9th 2021

Institutional investors own over 50% of the company, so together than can probably strongly influence board decisions. Castle Biosciences is not owned by hedge funds. With a 5.9% stake, CEO Derek Maetzold is the largest shareholder. Meanwhile, the second and third largest shareholders, hold 5.7% and 5.2%, of the shares outstanding, respectively.

Looking at the shareholder registry, we can see that 51% of the ownership is controlled by the top 17 shareholders, meaning that no single shareholder has a majority interest in the ownership.

While it makes sense to study institutional ownership data for a company, it also makes sense to study analyst sentiments to know which way the wind is blowing. Quite a few analysts cover the stock, so you could look into forecast growth quite easily.

Insider Ownership Of Castle Biosciences

The definition of company insiders can be subjective and does vary between jurisdictions. Our data reflects individual insiders, capturing board members at the very least. 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.

I generally consider insider ownership to be a good thing. However, on some occasions it makes it more difficult for other shareholders to hold the board accountable for decisions.

Shareholders would probably be interested to learn that insiders own shares in Castle Biosciences, Inc.. It is a pretty big company, so it is generally a positive to see some potentially meaningful alignment. In this case, they own around US$130m worth of shares (at current prices). If you would like to explore the question of insider alignment, you can click here to see if insiders have been buying or selling.

General Public Ownership

With a 21% ownership, the general public have some degree of sway over Castle Biosciences. While this group can't necessarily call the shots, it can certainly have a real influence on how the company is run.

Private Equity Ownership

Private equity firms hold a 5.2% stake in Castle Biosciences. This suggests they can be influential in key policy decisions. 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

We can see that Private Companies own 3.0%, of the shares on issue. 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.

Next Steps:

It's always worth thinking about the different groups who own shares in a company. But to understand Castle Biosciences better, we need to consider many other factors. To that end, you should be aware of the 3 warning signs we've spotted with Castle Biosciences .

But ultimately it is the future, not the past, that will determine how well the owners of this business will do. Therefore we think it advisable to take a look at this free report showing whether analysts are predicting a brighter 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. 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.
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