In this article, I will take a quick look at Obalon Therapeutics Inc’s (NASDAQ:OBLN) recent ownership structure – an unconventional investing subject, but an important one. Ownership structure has been found to have an impact on shareholder returns in both short- and long-term. 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, I will take a look at OBLN's shareholders in more detail.
Check out our latest analysis for Obalon Therapeutics
Institutional Ownership
With an institutional ownership of 13.4%, OBLN can face volatile stock price movements if institutions execute block trades on the open market, more so, when there are relatively small amounts of shares available on the market to trade Although OBLN has a high institutional ownership, such stock moves, in the short-term, are more commonly linked to a particular type of active institutional investors – hedge funds. Hedge funds, considered active investors, hold a 6.1% stake in the company, which may be the cause of high short-term volatility in the stock price. I am going to further examine OBLN's ownership structure to check how other major shareholders can affect its investment case.Insider Ownership
I 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. OBLN insiders are also influential stakeholders with 7.5% ownership in the company. This level of ownership indicates closely aligned interests of shareholders and management. However, it would be interesting to take a look at their buying and selling activities lately. Buying may be sign of upbeat future expectations, but selling doesn't necessarily mean the opposite as the insiders may be motivated by financial needs or they are simply diversifying their risk.General Public Ownership
A big stake of 24.0% in OBLN is held by the general public. This level of ownership gives retail investors the power to sway key policy decisions such as board composition, executive compensation, and potential acquisitions. This is a positive sign for an investor who wants to be involved in key decision-making of the company.Private Equity Ownership
Private equity firms hold a 43.0% stake in OBLN. With a stake of this size, they can be influential in key policy decisions. This is an encouraging sign for investors as these investors tend to be active strategist in companies, focusing on increasing operational and capital efficiency for the firm.Private Company Ownership
Another group of owners that a potential investor in OBLN should consider are private companies, with a stake of 6.0%. While they invest more often due to strategic interests, an investment can also be driven by capital gains through share price appreciation. With this size of ownership in OBLN, this ownership class can affect the company's business strategy. As a result, potential investors should further explore the company's business relations with these companies and find out if they can affect shareholder returns in the long-term.Next Steps:
With significant institutional ownership, including active hedge, existing investors should seek a margin of safety when investing in OBLN. This is to avoid getting trapped in a sustained sell-off that is often observed in stocks with this level of institutional participation. However, if you are building an investment case for OBLN, ownership structure alone should not dictate your decision to buy or sell the stock. Rather, you should be examining fundamental factors such as the intrinsic valuation, which is a key driver of Obalon Therapeutics’s share price. I urge you to complete your research by taking a look at the following:
- Future Outlook: What are well-informed industry analysts predicting for OBLN’s future growth? Take a look at our free research report of analyst consensus for OBLN’s outlook.
- Financial Health: Are OBLN’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.
- 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 editorial-team@simplywallst.com.
Simply Wall St analyst Simply Wall St and Simply Wall St have no position in any of the companies mentioned. This article 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.