Daqo New Energy Corp.'s (NYSE:DQ) latest 13% decline adds to one-year losses, institutional investors may consider 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
The top 14 shareholders own 51% of the company
A look at the shareholders of Daqo New Energy Corp. (NYSE:DQ) can tell us which group is most powerful. And the group that holds the biggest piece of the pie are institutions with 55% ownership. That is, the group stands to benefit the most if the stock rises (or lose the most if there is a downturn).
And institutional investors endured the highest losses after the company's share price fell by 13% last week. Needless to say, the recent loss which further adds to the one-year loss to shareholders of 41% might not go down well especially with this category of shareholders. Also referred to as "smart money", institutions have a lot of sway over how a stock's price moves. 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?
Institutions typically measure themselves against a benchmark when reporting to their own investors, so they often become more enthusiastic about a stock once it's included in a major index. We would expect most companies to have some institutions on the register, especially if they are growing.
Daqo New Energy already has institutions on the share registry. Indeed, they own a respectable stake in the company. 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 Daqo New Energy's historic earnings and revenue below, but keep in mind there's always more to the story.
Since institutional investors own more than half the issued stock, the board will likely have to pay attention to their preferences. Hedge funds don't have many shares in Daqo New Energy. From our data, we infer that the largest shareholder is Guangfu Xu (who also holds the title of Top Key Executive) with 10% of shares outstanding. Its usually considered a good sign when insiders own a significant number of shares in the company, and in this case, we're glad to see a company insider play the role of a key stakeholder. Meanwhile, the second and third largest shareholders, hold 8.0% and 3.5%, 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.
A closer look at our ownership figures suggests that the top 14 shareholders have a combined ownership of 51% implying that no single shareholder has a majority.
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 plenty of analysts covering the stock, so it might be worth seeing what they are forecasting, too.
Insider Ownership Of Daqo New Energy
The definition of an insider can differ slightly between different countries, but members of the board of directors always count. Company management run the business, but the CEO will answer to the board, even if he or she is a member of it.
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.
It seems insiders own a significant proportion of Daqo New Energy Corp.. It has a market capitalization of just US$1.8b, and insiders have US$459m worth of shares in their own names. That's quite significant. Most would be pleased to see the board is investing alongside them. You may wish to access this free chart showing recent trading by insiders.
General Public Ownership
With a 20% ownership, the general public, mostly comprising of individual investors, have some degree of sway over Daqo New Energy. While this group can't necessarily call the shots, it can certainly have a real influence on how the company is run.
Next Steps:
While it is well worth considering the different groups that own a company, there are other factors that are even more important. Like risks, for instance. Every company has them, and we've spotted 3 warning signs for Daqo New Energy (of which 1 is potentially serious!) 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.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.
