Satsuma Pharmaceuticals, Inc.'s (NASDAQ:STSA) stock price dropped 13% last week; private equity firms would not be happy

If you want to know who really controls Satsuma Pharmaceuticals, Inc. (NASDAQ:STSA), then you'll have to look at the makeup of its share registry. And the group that holds the biggest piece of the pie are private equity firms with 35% ownership. In other words, the group stands to gain the most (or lose the most) from their investment into the company.

And last week, private equity firms endured the biggest losses as the stock fell by 13%.

In the chart below, we zoom in on the different ownership groups of Satsuma Pharmaceuticals.

Our analysis indicates that STSA is potentially overvalued!

What Does The Institutional Ownership Tell Us About Satsuma Pharmaceuticals?

Institutional investors commonly compare their own returns to the returns of a commonly followed index. So they generally do consider buying larger companies that are included in the relevant benchmark index.

As you can see, institutional investors have a fair amount of stake in Satsuma Pharmaceuticals. 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. If multiple institutions change their view on a stock at the same time, you could see the share price drop fast. It's therefore worth looking at Satsuma Pharmaceuticals' earnings history below. Of course, the future is what really matters.

Our data indicates that hedge funds own 21% of Satsuma Pharmaceuticals. 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. The company's largest shareholder is RA Capital Management, L.P., with ownership of 19%. Commodore Capital LP is the second largest shareholder owning 12% of common stock, and New Enterprise Associates, Inc. holds about 10.0% of the company stock. Additionally, the company's CEO John Kollins directly holds 1.0% of the total shares outstanding.

To make our study more interesting, we found that the top 5 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. There are a reasonable number of analysts covering the stock, so it might be useful to find out their aggregate view on the future.

Insider Ownership Of Satsuma Pharmaceuticals

While the precise definition of an insider can be subjective, almost everyone considers board members to be insiders. The company management answer to the board and the latter should represent the interests of shareholders. Notably, sometimes top-level managers are on the board themselves.

Most consider insider ownership a positive because it can indicate the board is well aligned with other shareholders. However, on some occasions too much power is concentrated within this group.

We can report that insiders do own shares in Satsuma Pharmaceuticals, Inc.. As individuals, the insiders collectively own US$1.7m worth of the US$160m company. Some would say this shows alignment of interests between shareholders and the board, though we generally prefer to see bigger insider holdings. But it might be worth checking if those insiders have been selling.

General Public Ownership

With a 22% ownership, the general public, mostly comprising of individual investors, have some degree of sway over Satsuma Pharmaceuticals. While this size of ownership may not be enough to sway a policy decision in their favour, they can still make a collective impact on company policies.

Private Equity Ownership

Private equity firms hold a 35% stake in Satsuma Pharmaceuticals. This suggests they can be influential in key policy decisions. Sometimes we see private equity stick around for the long term, but generally speaking they have a shorter investment horizon and -- as the name suggests -- don't invest in public companies much. After some time they may look to sell and redeploy capital elsewhere.

Public Company Ownership

We can see that public companies hold 4.9% of the Satsuma Pharmaceuticals shares on issue. 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:

It's always worth thinking about the different groups who own shares in a company. But to understand Satsuma Pharmaceuticals better, we need to consider many other factors. Case in point: We've spotted 4 warning signs for Satsuma Pharmaceuticals you should be aware of, and 2 of them are a bit concerning.

If you would prefer discover what analysts are predicting in terms of future growth, do not miss this free report on analyst forecasts.

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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This article by Simply Wall St 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. Simply Wall St has no position in any stocks mentioned.