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. Ownership structure of a company has been found to affect share performance over time. Since 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 of shareholders, investors should take a closer look at ARCI’s shareholder registry.
Institutions account for 14.86% of ARCI’s outstanding shares, a significant enough holding to move stock prices if they start buying and selling in large quantities, especially when there are relatively small amounts of shares available on the market to trade. Although ARCI 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. With hedge funds holding a 6.39% stake in the company, its share price can experience heightened volatility. We should dig deeper into the company’s ownership structure to find how the rest of its ownership structure can impact its investment case.
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. With 7.25% ownership, ARCI insiders is an important ownership type. This level of ownership indicates closely aligned interests of shareholders and management. I will also like to check what insiders have been doing recently with their holdings. insider buying may be a sign of upbeat future expectations, however, selling doesn’t necessarily mean the opposite as insiders may be motivated by their personal financial needs.
General Public Ownership
The general public holds a substantial 62.94% stake in ARCI, making it a highly popular stock among retail investors. With this size of ownership, retail investors can collectively play a role in major company policies that affect shareholders returns, including executive remuneration and the appointment of directors. They can also exercise the power to decline an acquisition or merger that may not improve profitability.
Private Equity Ownership
With a stake of 8.55%, private equity firms form another important class of owners in ARCI. With a stake of 8.55%, they can influence ARCI’s key policy decisions. 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.
I suggest investors seek some degree of margin of safety due to high institutional ownership in ARCI, in particular due to the strong presence of active hedge fund investors. This will allow an investor 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 ARCI. Rather, you should be looking at fundamental drivers such as the intrinsic valuation, which is a key driver of Appliance Recycling Centers of America’s share price. I urge you to complete your research by taking a look at the following:
- Financial Health: Is 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 pass 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.