Today, I will be analyzing Appliance Recycling Centers of America Inc’s (NASDAQ:ARCI) recent ownership structure, an important but not-so-popular subject among individual investors. A company’s ownership structure is often linked to its share performance in both the long- and short-term. 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, I will take a look at ARCI’s shareholders in more detail.
Institutional OwnershipInstitutional investors typically buy and sell shares in large magnitudes which can significantly sway the share price, especially when there are relatively small amounts of shares available on the market to trade. ARCI has institutions holding a stake of just 4.73%, which should not be much of a concern in terms of excessive price volatility. But another factor to consider is the presence of hedge funds, who are notorious for active investing. In ARCI’s case, they make up 6.39% of ownership, indicating potential sharp stock price movements during significant transactions. However, I would explore its ownership registry in more detail to check how other ownership types affect its investment case for the long-term investor.
Insider OwnershipInsiders form a group of important ownership types as they manage the company’s operations and decide the best use of capital. Insider ownership has been linked to better alignment between management and shareholders. 9.04% ownership makes insiders an important shareholder group. This level of ownership indicates closely aligned interests of shareholders and management. However, it would be interesting to take a look at their buying and selling activities lately. Buying may be sign of upbeat future expectations, but selling doesn’t necessarily mean the opposite as the insiders may be motivated by financial needs or they are simply diversifying their risk.
General Public OwnershipA big stake of 62.28% in ARCI 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 OwnershipWith an ownership of 8.55%, private equity firms are a major stakeholder in ARCI and are in a position to play an important role in shaping up corporate strategy with a focus on value creation. An investor should be encouraged by the ownership of these institutions who are known to be experts in increasing efficiency, improving capital structure and opting for value-accretive policy decisions.
Private Company OwnershipAnother group of owners that a potential investor in ARCI should consider are private companies, with a stake of 9.01%. While they invest more often due to strategic interests, an investment can also be driven by capital gains through share price appreciation. With this size of ownership in ARCI, this ownership class can affect the company’s business strategy. As a result, potential investors should further explore the company’s business relations with these companies and find out if they can affect shareholder returns in the long-term.
While institutional ownership in ARCI is low, active hedge funds still have a significant stake in the company. Their ownership is a non-fundamental factor, which can impact ARCI’s price volatility in the short-term, considering this group investors may come under pressure to deliver in the short term. An investment in ARCI should come with enough margin of safety in order to avoid significant dips in shareholding value. However, if you are building an investment case for ARCI, ownership structure alone should not dictate your decision to buy or sell the stock. Rather, you should be examining fundamental factors such as Appliance Recycling Centers of America’s past track record and financial health. I urge you to complete your research by taking a look at the following:
- Financial Health: Are ARCI’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.
- Past Track Record: Has ARCI 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 ARCI’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 firstname.lastname@example.org.