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Could The Simulations Plus Inc (NASDAQ:SLP) Ownership Structure Tell Us Something Useful?

If you want to know who really controls Simulations Plus Inc (NASDAQ:SLP), then you’ll have to look at the makeup of its share registry. Institutions often own shares in more established companies, while it’s not unusual to see insiders own a fair bit of smaller companies. Warren Buffett said that he likes ‘a business with enduring competitive advantages that is run by able and owner-oriented people’. So it’s nice to see some insider ownership, because it may suggest that management is owner-oriented.

Simulations Plus is not a large company by global standards. It has a market capitalization of US$337m, which means it wouldn’t have the attention of many institutional investors. Taking a look at the our data on the ownership groups (below), it’s seems that institutions own shares in the company. Let’s delve deeper into each type of owner, to discover more about SLP.

View our latest analysis for Simulations Plus

NasdaqCM:SLP Ownership Summary December 10th 18

What Does The Institutional Ownership Tell Us About Simulations Plus?

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 own 40% of Simulations Plus. This suggests some credibility amongst professional investors. But we can’t rely on that fact alone, since institutions make bad investments sometimes, just like everyone does. When multiple institutions own a stock, there’s always a risk that they are in a ‘crowded trade’. When such a trade goes wrong, multiple parties may compete to sell stock fast. This risk is higher in a company without a history of growth. You can see Simulations Plus’s historic earnings and revenue, below, but keep in mind there’s always more to the story.

NasdaqCM:SLP Income Statement Export December 10th 18

Simulations Plus is not owned by hedge funds. While there is some analyst coverage, the company is probably not widely covered. So it could gain more attention, down the track.

Insider Ownership Of Simulations Plus

While the precise definition of an insider can be subjective, almost everyone considers board members to be insiders. The company management answer to the board; and the latter should represent the interests of shareholders. Notably, sometimes top-level managers are on the board, themselves.

Most consider insider ownership a positive because it can indicate the board is well aligned with other shareholders. However, on some occasions too much power is concentrated within this group.

Our information suggests that insiders maintain a significant holding in Simulations Plus Inc. It has a market capitalization of just US$337m, and insiders have US$107m worth of shares in their own names. I would say this shows alignment with shareholders, but it is worth noting that the company is still quite small; some insiders may have founded the business. You can click here to see if those insiders have been buying or selling.

General Public Ownership

With a 28% ownership, the general public have some degree of sway over SLP. 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:

It’s always worth thinking about the different groups who own shares in a company. But to understand Simulations Plus better, we need to consider many other factors.

I like to dive deeper into how a company has performed in the past. You can access this interactive graph of past earnings, revenue and cash flow, for free .

Ultimately the future is most important. You can access this free report on analyst forecasts for the company.

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 editorial-team@simplywallst.com.