In this article, I’m going to take a look at Zai Lab Limited’s (NASDAQ:ZLAB) latest ownership structure, a non-fundamental factor which is important, but remains a less discussed subject among investors. Ownership structure has been found to have an impact on shareholder returns in both short- and long-term. 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 ZLAB’s shareholder registry in more detail.Check out our latest analysis for Zai Lab
Institutional OwnershipWith an institutional ownership of 21.10%, ZLAB can face volatile stock price movements if institutions execute block trades on the open market, more so, when there are relatively small amounts of shares available on the market to trade Although ZLAB 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 ZLAB, investors need not worry about such volatility considering active hedge funds don’t have a significant stake. However, we should dig deeper into ZLAB’s ownership structure and find out how other key ownership classes can affect its investment profile.
Insider OwnershipAnother 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. A major group of owners of ZLAB is individual insiders, sitting with a hefty 16.04% stake in the company. Broadly, insider ownership of this level has been found to negatively affect companies with consistently low PE ratio (underperforming). And a positive impact has been seen on companies with a high PE ratio (outperforming). It may be interesting to take a look at what company insiders have been doing with their holdings lately. While insider buying is possibly a sign of a positive outlook for the company, selling doesn’t necessarily indicate a negative outlook as they may be selling to meet personal financial needs.
General Public OwnershipThe general public, with 4.17% stake, is a relatively minor group of shareholders in ZLAB. This size of ownership may not be enough to sway a policy decision in their favour, but they can still make a collective impact on company policies if it aligns with other large shareholders.
Private Equity OwnershipPrivate equity firms hold a 15.56% stake in ZLAB. With a stake of this size, they can be influential in 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.
Private Company OwnershipAnother important group of owners for potential investors in ZLAB are private companies that hold a stake of 43.12% in ZLAB. These are companies that are mainly invested due to their strategic interests or are incentivized by reaping capital gains on investments their shareholdings. An ownership of this size indicates a strong financial backing and has the potential to influence ZLAB’s business strategy. Thus, investors should dig deeper into ZLAB’s business relations with these companies and how it can affect shareholder returns in the long-term.
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 determining factor when you’re building an investment thesis for ZLAB. Rather, you should be looking at fundamental drivers such as Zai Lab’s past track record and financial health. I urge you to complete your research by taking a look at the following:
- 1. Future Outlook: What are well-informed industry analysts predicting for ZLAB’s future growth? Take a look at our free research report of analyst consensus for ZLAB’s outlook.
- 2. Financial Health: Is ZLAB’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.
- 3. 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.