I am going to take a deep dive into Madrigal Pharmaceuticals Inc’s (NASDAQ:MDGL) most recent ownership structure, not a frequent subject of discussion among individual investors. The impact of a company’s ownership structure affects both its short- and long-term performance. The effect of an active institutional investor with a similar ownership as a passive pension-fund can be vastly different on a company’s corporate governance and accountability to shareholders. While this may be more interesting for long-term investors, short-term investors can also benefit by paying attention to when these institutions trade in order to take advantage of the heightened volatility. Now I will analyze MDGL’s shareholder registry in more detail.See our latest analysis for MDGL
Institutional OwnershipInstitutions account for 21.80% of MDGL’s outstanding shares, a significant enough holding to move stock prices if they start buying and selling in large quantities, especially when there are relatively small amounts of shares available on the market to trade. Although MDGL 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. In the case of MDGL, investors need not worry about such volatility considering active hedge funds don’t have a significant stake. However, we should dig deeper into MDGL’s ownership structure and find out how other key ownership classes can affect its investment profile.
Insider OwnershipInsiders form another group of important ownership types as they manage the company’s operations and decide the best use of capital. Insider ownership has been linked to better alignment between management and shareholders. 7.99% ownership makes insiders an important shareholder group. This level of stake with insiders indicate highly aligned interests of shareholders and company executives. I will also like to check what insiders have been doing recently with their holdings. insider buying may be a sign of upbeat future expectations, however, selling doesn’t necessarily mean the opposite as insiders may be motivated by their personal financial needs.
General Public OwnershipA substantial ownership of 19.10% in MDGL 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.
Private Equity OwnershipWith an ownership of 45.28%, private equity firms are a major stakeholder in MDGL and are in a position to play an important role in shaping up corporate strategy with a focus on value creation. 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 OwnershipPotential investors in MDGL should also look at another important group of investors: private companies, with a stake of 5.83%, who are primarily invested because of strategic and capital gain interests. An ownership of this size indicates a strong financial backing and has the potential to influence MDGL’s business strategy. Thus, investors should dig deeper into MDGL’s business relations with these companies and how it can affect shareholder returns in the long-term.
What this means for you:
The company’s high institutional ownership makes margin of safety a very important consideration to existing investors since long bull and bear trends often emerge when these big-ticket investors see a change in long-term potential of the company. This will enable shareholders to comfortably invest in the company while avoid getting trapped in a sustained sell-off that is often observed in stocks with this level of institutional participation. However, ownership structure should not be the only focus of your research when constructing an investment thesis around MDGL. Rather, you should be looking at fundamental drivers such as Madrigal Pharmaceuticals’s past track record and financial health. I urge you to complete your research by taking a look at the following:
1. Financial Health: Is MDGL’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.
2. 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.