In this article, I’m going to take a look at Kiniksa Pharmaceuticals Ltd’s (NASDAQ:KNSA) latest ownership structure, a non-fundamental factor which is important, but remains a less discussed subject among investors. Ownership structure of a company has been found to affect share performance over time. The same amount of capital coming from an activist institution and a passive mutual fund has different implications on corporate governance, which is a decisive factor for a long-term investor. It also impacts the trading environment of company shares, which is more of a concern for short-term investors. Therefore, I will take a look at KNSA’s shareholders in more detail.See our latest analysis for Kiniksa Pharmaceuticals
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. Generally, an institutional ownership of 9.25%, in the case of KNSA, should not concern investors in terms of high stock volatility. But investors should also check whether hedge funds, mostly active investors with a short-term horizon, have a significant stake. They own 50.75% of KNSA’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. KNSA insiders hold a significant stake of 11.39% 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 OwnershipA substantial ownership of 28.61% in KNSA 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.
Although KNSA has a low level of overall institutional ownership, active hedge funds still have a significant stake in the company. The participation of these active investors has been linked to the volatile nature of share prices. It is important that KNSA offers enough margin of safety in order to avoid a significant portfolio impact resulting from a sustained sell-off and drop in share value. However, ownership structure should not be the only focus of your research when constructing an investment thesis around KNSA. Instead, you should be evaluating company-specific factors such as the intrinsic valuation, which is a key driver of Kiniksa Pharmaceuticals’s share price. I urge you to complete your research by taking a look at the following:
- Financial Health: Is KNSA’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.