Decibel Therapeutics, Inc. (NASDAQ:DBTX) surges 80%; private equity firms who own 41% shares profited along with institutions
Key Insights
Significant control over Decibel Therapeutics by private equity firms implies that the general public has more power to influence management and governance-related decisions
The top 4 shareholders own 51% of the company
To get a sense of who is truly in control of Decibel Therapeutics, Inc. (NASDAQ:DBTX), it is important to understand the ownership structure of the business. We can see that private equity firms own the lion's share in the company with 41% ownership. That is, the group stands to benefit the most if the stock rises (or lose the most if there is a downturn).
While private equity firms were the group that benefitted the most from last week’s US$53m market cap gain, institutions too had a 29% share in those profits.
In the chart below, we zoom in on the different ownership groups of Decibel Therapeutics.
Check out our latest analysis for Decibel Therapeutics
What Does The Institutional Ownership Tell Us About Decibel Therapeutics?
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.
As you can see, institutional investors have a fair amount of stake in Decibel Therapeutics. This can indicate that the company has a certain degree of credibility in the investment community. However, it is best to be wary of relying on the supposed validation that comes with institutional investors. They too, get it wrong sometimes. 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 Decibel Therapeutics' historic earnings and revenue below, but keep in mind there's always more to the story.
Decibel Therapeutics is not owned by hedge funds. Our data shows that OrbiMed Advisors LLC is the largest shareholder with 21% of shares outstanding. For context, the second largest shareholder holds about 13% of the shares outstanding, followed by an ownership of 8.9% by the third-largest shareholder.
Our research also brought to light the fact that roughly 51% of the company is controlled by the top 4 shareholders suggesting that these owners wield significant influence on the business.
While it makes sense to study institutional ownership data for a company, it also makes sense to study analyst sentiments to know which way the wind is blowing. There are plenty of analysts covering the stock, so it might be worth seeing what they are forecasting, too.
Insider Ownership Of Decibel Therapeutics
The definition of company insiders can be subjective and does vary between jurisdictions. Our data reflects individual insiders, capturing board members at the very least. 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 most recent data indicates that insiders own less than 1% of Decibel Therapeutics, Inc.. It appears that the board holds about US$276k worth of stock. This compares to a market capitalization of US$119m. Many tend to prefer to see a board with bigger shareholdings. A good next step might be to take a look at this free summary of insider buying and selling.
General Public Ownership
The general public, who are usually individual investors, hold a 20% stake in Decibel Therapeutics. While this size of ownership may not be enough to sway a policy decision in their favour, they can still make a collective impact on company policies.
Private Equity Ownership
With a stake of 41%, private equity firms could influence the Decibel Therapeutics board. Some investors might be encouraged by this, since private equity are sometimes able to encourage strategies that help the market see the value in the company. Alternatively, those holders might be exiting the investment after taking it public.
Public Company Ownership
Public companies currently own 8.9% of Decibel Therapeutics stock. This may be a strategic interest and the two companies may have related business interests. It could be that they have de-merged. This holding is probably worth investigating further.
Next Steps:
I find it very interesting to look at who exactly owns a company. But to truly gain insight, we need to consider other information, too. For instance, we've identified 3 warning signs for Decibel Therapeutics (2 are concerning) that you should be aware of.
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.
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.
