Daqo New Energy Corp.'s (NYSE:DQ) recent 6.3% pullback adds to one-year year losses, institutional owners may take drastic measures

Key Insights

• Given the large stake in the stock by institutions, Daqo New Energy's stock price might be vulnerable to their trading decisions
• A total of 12 investors have a majority stake in the company with 51% ownership
• Insiders own 25% of Daqo New Energy

To get a sense of who is truly in control of Daqo New Energy Corp. (NYSE:DQ), it is important to understand the ownership structure of the business. We can see that institutions own the lion's share in the company with 64% ownership. That is, the group stands to benefit the most if the stock rises (or lose the most if there is a downturn).

As a result, institutional investors endured the highest losses last week after market cap fell by US$151m. This set of investors may especially be concerned about the current loss, which adds to a one-year loss of 48% for shareholders. Often called “market movers", institutions wield significant power in influencing the price dynamics of any stock. As a result, if the decline continues, institutional investors may be pressured to sell Daqo New Energy which might hurt individual investors.

In the chart below, we zoom in on the different ownership groups of Daqo New Energy.

See our latest analysis for Daqo New Energy

What Does The Institutional Ownership Tell Us About Daqo New Energy?

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 Daqo New Energy. This implies the analysts working for those institutions have looked at the stock and they like it. But just like anyone else, they could be wrong. It is not uncommon to see a big share price drop if two large institutional investors try to sell out of a stock at the same time. So it is worth checking the past earnings trajectory of Daqo New Energy, (below). Of course, keep in mind that there are other factors to consider, too.

Investors should note that institutions actually own more than half the company, so they can collectively wield significant power. Daqo New Energy is not owned by hedge funds. Because actions speak louder than words, we consider it a good sign when insiders own a significant stake in a company. In Daqo New Energy's case, its Top Key Executive, Guangfu Xu, is the largest shareholder, holding 10% of shares outstanding. Meanwhile, the second and third largest shareholders, hold 8.0% and 6.0%, of the shares outstanding, respectively. Interestingly, the second-largest shareholder, Xiang Xu is also Chief Executive Officer, again, pointing towards strong insider ownership amongst the company's top shareholders.

After doing some more digging, we found that the top 12 have the combined ownership of 51% in the company, suggesting that no single shareholder has significant control over the company.

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 Daqo New Energy

While the precise definition of an insider can be subjective, almost everyone considers board members to be insiders. Management ultimately answers to the board. However, it is not uncommon for managers to be executive board members, especially if they are a founder or the CEO.

I generally consider insider ownership to be a good thing. However, on some occasions it makes it more difficult for other shareholders to hold the board accountable for decisions.

Our information suggests that insiders maintain a significant holding in Daqo New Energy Corp.. Insiders own US$575m worth of shares in the US$2.3b company. That's quite meaningful. Most would say this shows a good degree of alignment with shareholders, especially in a company of this size. You can click here to see if those insiders have been buying or selling.

General Public Ownership

With a 11% ownership, the general public, mostly comprising of individual investors, have some degree of sway over Daqo New Energy. This size of ownership, while considerable, may not be enough to change company policy if the decision is not in sync with other large shareholders.

Next Steps:

I find it very interesting to look at who exactly owns a company. But to truly gain insight, we need to consider other information, too. Like risks, for instance. Every company has them, and we've spotted 3 warning signs for Daqo New Energy (of which 1 is a bit concerning!) you should know about.

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.