Institutions along with private equity firms who hold considerable shares inSierra Oncology, Inc. (NASDAQ:SRRA) come under pressure; lose 13% of holdings value

By
Simply Wall St
Published
January 19, 2022
NasdaqGM:SRRA
Source: Shutterstock

To get a sense of who is truly in control of Sierra Oncology, Inc. (NASDAQ:SRRA), it is important to understand the ownership structure of the business. And the group that holds the biggest piece of the pie are private equity firms with 42% ownership. Put another way, the group faces the maximum upside potential (or downside risk).

While the holdings of private equity firms took a hit after last week’s 13% price drop, institutions with their 21% holdings also suffered.

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

Check out our latest analysis for Sierra Oncology

ownership-breakdown
NasdaqGM:SRRA Ownership Breakdown January 19th 2022

What Does The Institutional Ownership Tell Us About Sierra Oncology?

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.

We can see that Sierra Oncology does have institutional investors; and they hold a good portion of the company's stock. This suggests some credibility amongst professional investors. But we can't rely on that fact alone since institutions make bad investments sometimes, just like everyone does. 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 Sierra Oncology's historic earnings and revenue below, but keep in mind there's always more to the story.

earnings-and-revenue-growth
NasdaqGM:SRRA Earnings and Revenue Growth January 19th 2022

It would appear that 16% of Sierra Oncology shares are controlled by hedge funds. That worth noting, since hedge funds are often quite active investors, who may try to influence management. Many want to see value creation (and a higher share price) in the short term or medium term. Vivo Capital, LLC is currently the largest shareholder, with 13% of shares outstanding. Longitude Capital Management Co., LLC is the second largest shareholder owning 9.8% of common stock, and Rock Springs Capital Management LP holds about 8.7% of the company stock.

We also observed that the top 6 shareholders account for more than half of the share register, with a few smaller shareholders to balance the interests of the larger ones to a certain extent.

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. Quite a few analysts cover the stock, so you could look into forecast growth quite easily.

Insider Ownership Of Sierra Oncology

While the precise definition of an insider can be subjective, almost everyone considers board members to be insiders. 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.

Our information suggests that Sierra Oncology, Inc. insiders own under 1% of the company. It appears that the board holds about US$955k worth of stock. This compares to a market capitalization of US$290m. Many tend to prefer to see a board with bigger shareholdings. A good next step might be to take a look at this free summary of insider buying and selling.

General Public Ownership

The general public, who are usually individual investors, hold a 15% stake in Sierra Oncology. This size of ownership, while considerable, may not be enough to change company policy if the decision is not in sync with other large shareholders.

Private Equity Ownership

With an ownership of 42%, private equity firms are in a position to play a role in shaping corporate strategy with a focus on value creation. 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.

Public Company Ownership

It appears to us that public companies own 4.8% of Sierra Oncology. It's hard to say for sure but this suggests they have entwined business interests. This might be a strategic stake, so it's worth watching this space for changes in ownership.

Next Steps:

I find it very interesting to look at who exactly owns a company. But to truly gain insight, we need to consider other information, too. To that end, you should learn about the 3 warning signs we've spotted with Sierra Oncology (including 1 which doesn't sit too well with us) .

Ultimately the future is most important. You can access this free report on analyst forecasts for the company.

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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