Should You Be Concerned About Zedge Inc’s (NYSEMKT:ZDGE) Investors?

In this article, I will take a quick look at Zedge Inc’s (AMEX:ZDGE) recent ownership structure – an unconventional investing subject, but an important one. 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. Therefore, it is beneficial for us to examine ZDGE’s ownership structure in more detail.

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AMEX:ZDGE Ownership_summary May 19th 18
AMEX:ZDGE Ownership_summary May 19th 18

Institutional Ownership

In ZDGE’s case, institutional ownership stands at 27.08%, 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. 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. For shareholders in ZDGE, sharp price movements may not be a major concern as active hedge funds hold a relatively small stake in the company. Although this doesn’t necessarily lead to high short-term volatility, we should dig deeper into ZDGE’s ownership structure to find how the remaining owner types can affect its investment profile.

Insider Ownership

Insiders form another 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. 25.92% ownership of ZDGE insiders is large enough to make an impact on shareholder returns. In general, this level of insider ownership has negatively affected underperforming (consistently low PE ratio) companies and positively affected the companies that outperform (consistently high PE ratio). 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.
AMEX:ZDGE Insider_trading May 19th 18
AMEX:ZDGE Insider_trading May 19th 18

General Public Ownership

A big stake of 46.47% in ZDGE 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. This level of ownership gives retail investors the power to sway key policy decisions such as board composition, executive compensation, and potential acquisitions. This is a positive sign for an investor who wants to be involved in key decision-making of the company.

Private Company Ownership

Potential investors in ZDGE should also look at another important group of investors: private companies, with a stake of 0.52%, who are primarily invested because of strategic and capital gain interests. However, an ownership of this size may be relatively insignificant, meaning that these shareholders may not have the potential to influence ZDGE’s business strategy. Thus, investors not need worry too much about the consequences of these holdings.

Next Steps:

ZDGE’s considerably high level of institutional ownership calls for further analysis into its margin of safety. This will allow investors 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 focus of your research when constructing an investment thesis around ZDGE. Rather, you should be looking at fundamental drivers such as the intrinsic valuation, which is a key driver of Zedge’s share price. I urge you to complete your research by taking a look at the following:

  1. Financial Health: Is ZDGE’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.
  2. 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.