In this analysis, my focus will be on developing a perspective on XOMA Corporation’s (NASDAQ:XOMA) latest ownership structure, a less discussed, but important factor. 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. Now I will analyze XOMA’s shareholder registry in more detail.
Institutional OwnershipIn XOMA’s case, institutional ownership stands at 29.40%, significant enough to cause considerable price moves in the case of large institutional transactions, especially when there is a low level of public shares available on the market to trade. Although XOMA 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. With hedge funds holding a 17.92% stake in the company, its share price can experience heightened volatility. 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 OwnershipAn 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. XOMA insiders hold a minor 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. It would also be interesting to check what insiders have been doing with their shareholding recently. Insider buying can be a positive indicator of future performance, but a selling decision can be simply driven by personal financial requirements.
General Public OwnershipA big stake of 45.56% in XOMA 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.
Public Company OwnershipPotential investors in XOMA should also look at another important group of investors: other public companies, with a stake of 6.43%, 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 XOMA’s business strategy. Thus, investors should dig deeper into XOMA’s business relations with these companies and how it can affect shareholder returns in the long-term.
I suggest investors seek some degree of margin of safety due to high institutional ownership in XOMA, in particular due to the strong presence of active hedge fund investors. This is to 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 XOMA. Rather, you should be looking at fundamental drivers such as the intrinsic valuation, which is a key driver of XOMA’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 XOMA’s future growth? Take a look at our free research report of analyst consensus for XOMA’s outlook.
- Past Track Record: Has XOMA been consistently performing well irrespective of the ups and downs in the market? Go into more detail in the past performance analysis and take a look at the free visual representations of XOMA’s historicals for more clarity.
- 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.
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.
To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at email@example.com.