In this analysis, my focus will be on developing a perspective on Cerecor Inc’s (NASDAQ:CERC) latest ownership structure, a less discussed, but important factor. When it comes to ownership structure of a company, the impact has been observed in both the long-and short-term performance of shares. Since the same amount of capital coming from an activist institution and a passive mutual fund has different implications on corporate governance, it is a useful exercise to deconstruct CERC’s shareholder registry. All data provided is as of the most recent financial year end.
Institutional investors are one of the largest group of market participants and their buy-sell decisions on a company’s stock can significantly impact prices, more so, when there are relatively small amounts of shares available on the market to trade. CERC has institutions holding a stake of just 5.92%, which should not be much of a concern in terms of excessive price volatility. But investors should also check whether hedge funds, mostly active investors with a short-term horizon, have a significant stake. They own 97.11% of CERC’s outstanding shares, enough to cause a spike in volatility, at least in the short-term. However, I would explore its ownership registry in more detail to check how other ownership types affect its investment case for the long-term investor.
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. 11.85% ownership of CERC insiders is large enough to make an impact on shareholder returns. In general, this level of insider ownership has negatively affected underperforming (consistently low PE ratio) companies and positively affected the companies that outperform (consistently high PE ratio). It’s also interesting to learn what CERC insiders have been doing with their shareholdings lately. While insider buying is possibly a sign of a positive outlook for the company, selling doesn’t necessarily indicate a negative outlook as they may be selling to meet personal financial needs.
Private Company Ownership
Another important group of owners for potential investors in CERC are private companies that hold a stake of 8.30% in CERC. These are companies that are mainly invested due to their strategic interests or are incentivized by reaping capital gains on investments their shareholdings. This kind of ownership, if predominantly strategic, can give these companies a significant power to affect CERC’s business strategy. Thus, potential investors should look into these business relations and check how it can impact long-term shareholder returns.
What this means for you:
Although CERC has a low level of overall institutional ownership, active hedge funds still have a significant stake in the company. The participation of these active investors has been linked to the volatile nature of share prices. An investment in CERC should come with enough margin of safety in order to avoid significant dips in shareholding value. However, if you are building an investment case for CERC, ownership structure alone should not dictate your decision to buy or sell the stock. Rather, you should be looking at fundamental drivers such as the intrinsic valuation, which is a key driver of Cerecor’s share price. I urge you to complete your research by taking a look at the following:
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.