Private equity firms who have a significant stake must be disappointed along with institutions after Graphite Bio, Inc.'s (NASDAQ:GRPH) market cap dropped by US$63m

By
Simply Wall St
Published
November 18, 2021
NasdaqGM:GRPH
Source: Shutterstock

To get a sense of who is truly in control of Graphite Bio, Inc. (NASDAQ:GRPH), it is important to understand the ownership structure of the business. With 41% stake, private equity firms possess the maximum shares in the company. That is, the group stands to benefit the most if the stock rises (or lose the most if there is a downturn).

While the holdings of private equity firms took a hit after last week’s 8.7% price drop, institutions with their 38% holdings also suffered.

Let's delve deeper into each type of owner of Graphite Bio, beginning with the chart below.

Check out our latest analysis for Graphite Bio

ownership-breakdown
NasdaqGM:GRPH Ownership Breakdown November 19th 2021

What Does The Institutional Ownership Tell Us About Graphite Bio?

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.

As you can see, institutional investors have a fair amount of stake in Graphite Bio. 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 Graphite Bio's historic earnings and revenue below, but keep in mind there's always more to the story.

earnings-and-revenue-growth
NasdaqGM:GRPH Earnings and Revenue Growth November 19th 2021

Graphite Bio is not owned by hedge funds. Versant Venture Management, LLC is currently the company's largest shareholder with 28% of shares outstanding. Samsara BioCapital LLC is the second largest shareholder owning 13% of common stock, and Matthew Porteus holds about 6.1% of the company stock. Matthew Porteus, who is the third-largest shareholder, also happens to hold the title of Member of the Board of Directors. Furthermore, CEO Joshua Lehrer-Graiwer is the owner of 2.0% of the company's shares.

To make our study more interesting, we found that the top 4 shareholders control more than half of the company which implies that this group has considerable sway over the company's decision-making.

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. While there is some analyst coverage, the company is probably not widely covered. So it could gain more attention, down the track.

Insider Ownership Of Graphite Bio

The definition of an insider can differ slightly between different countries, but members of the board of directors always count. Management ultimately answers to the board. However, it is not uncommon for managers to be executive board members, especially if they are a founder or the CEO.

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.

Shareholders would probably be interested to learn that insiders own shares in Graphite Bio, Inc.. As individuals, the insiders collectively own US$63m worth of the US$657m company. It is good to see some investment by insiders, but it might be worth checking if those insiders have been buying.

General Public Ownership

The general public-- including retail investors -- own 11% stake in the company, and hence can't easily be ignored. 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

With an ownership of 41%, private equity firms are in a position to play a role in shaping corporate strategy with a focus on value creation. Some investors might be encouraged by this, since private equity are sometimes able to encourage strategies that help the market see the value in the company. Alternatively, those holders might be exiting the investment after taking it public.

Next Steps:

While it is well worth considering the different groups that own a company, there are other factors that are even more important. Case in point: We've spotted 5 warning signs for Graphite Bio you should be aware of, and 2 of them shouldn't be ignored.

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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