Today, I will be analyzing Synlogic Inc’s (NASDAQ:SYBX) recent ownership structure, an important but not-so-popular subject among individual investors. When it comes to ownership structure of a company, the impact has been observed in both the long-and short-term performance of shares. 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. Therefore, it is beneficial for us to examine SYBX’s ownership structure in more detail.
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Institutional Ownership
SYBX’s 38.36% institutional ownership seems enough to cause large share price movements in the case of significant share sell-off or acquisitions by institutions, particularly when there is a low level of public shares available on the market to trade. These moves, at least in the short-term, are generally observed in an institutional ownership mix comprising of active stock pickers, in particular levered hedge funds, which can cause large price swings. Considering hedge funds hold a stake of 5.36% in the company, SYBX shares may experience high short-term volatility as this class of institutions are frequently found to sell significantly during market-wide shocks. We should dig deeper into the company’s ownership structure to find how the rest of its ownership structure can impact its investment case.Insider Ownership
An 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. SYBX insiders hold a not-so-significant 2.17% stake in the company, which somewhat aligns their interests with that of shareholders. However, a higher level of insider ownership has been linked to management executing on high-returning projects instead of expansion projects for the sake of apparent growth. 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 Ownership
A substantial ownership of 17.69% in SYBX is held by the general public. This size of ownership gives retail investors collective power in deciding on major policy decisions such as executive compensation, appointment of directors and acquisitions of businesses.Private Equity Ownership
With a stake of 35.01%, private equity firms form another important class of owners in SYBX. With a stake of 35.01%, they can influence SYBX’s key policy decisions. 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.Public Company Ownership
Another group of owners that a potential investor in SYBX should consider are other public companies, with a stake of 1.40%. While they invest more often due to strategic interests, an investment can also be driven by capital gains through share price appreciation. However, an ownership of this size may be relatively insignificant, meaning that these shareholders may not have the potential to influence SYBX’s business strategy. Thus, investors not need worry too much about the consequences of these holdings.Next Steps:
I suggest investors seek some degree of margin of safety due to high institutional ownership in SYBX, in particular due to the strong presence of active hedge fund investors. This will allow an investor to reduce the impact of non-fundamental factors, such as volatile block trading impact on their portfolio value. However, ownership structure should not be the only determining factor when you’re building an investment thesis for SYBX. Rather, you should be examining fundamental factors such as the intrinsic valuation, which is a key driver of Synlogic’s share price. I highly recommend you to complete your research by taking a look at the following:
- Future Outlook: What are well-informed industry analysts predicting for SYBX’s future growth? Take a look at our free research report of analyst consensus for SYBX’s outlook.
- Financial Health: Is SYBX’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.