Today, I will be analyzing EVE Investments Limited’s (ASX:EVE) recent ownership structure, an important but not-so-popular subject among individual investors. Ownership structure has been found to have an impact on shareholder returns in both short- and long-term. If an activist institution invests the same amount of capital in a stock as a passive long-term pension fund, the implications are potentially different for key corporate financing decisions such as the use of excess cash or the source of financing. While these are more of a long-term investor’s concern, short-term investors may find the impact of institutional trading overwhelming enough to lose out on what could be a potential opportunity. Therefore, I will take a look at EVE’s shareholders in more detail.
See our latest analysis for EVE
Institutional 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. With an institutional ownership of 5.06%, EVE doesn’t seem too exposed to higher volatility resulting from institutional trading. Less covered stocks like EVE used to feature in legendary investor Peter Lynch’s portfolio, which would later be bought up by fast-following institutions as the stock gained more popularity.
Another 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. EVE insiders hold a significant stake of 30.28% in the company. This level of insider ownership has been found to have a negative impact on companies with consistently low PE ratios (underperformers), while it has been positive in the case of high PE ratio firms (outperformers). It may be interesting to take a look at what company insiders have been doing with their holdings lately. Insiders buying company shares can be a positive indicator of future performance, but a selling decision can simply be driven by personal financial needs.
General Public Ownership
A big stake of 60.73% in EVE 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. Such 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
Another group of owners that a potential investor in EVE should consider are private companies, with a stake of 3.93%. While they invest more often due to strategic interests, an investment can also be driven by capital gains through share price appreciation. However, an ownership of this size may be relatively insignificant, meaning that these shareholders may not have the potential to influence EVE’s business strategy. Thus, investors not need to worry too much about the consequences of these holdings.
With a low level of institutional ownership, investors in EVE need not worry about non-fundamental factors such as ownership structure causing large impact on stock prices. Institutional ownership level and composition in EVE is not high nor active enough to significantly impact its investment thesis. However, other important factors we must never forget to assess are the fundamentals. I recommend you take a look at our latest free analysis report on EVE Investments to see EVE’s fundamentals and whether it could be considered an undervalued opportunity.
PS. If you are not interested in EVE Investments anymore, you can use our free platform to see my list of over 50 other stocks with a high growth potential.
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