In this article, I’m going to take a look at InZinc Mining Ltd’s (TSXV:IZN) latest ownership structure, a non-fundamental factor which is important, but remains a less discussed subject among investors. Ownership structure of a company has been found to affect share performance over time. 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 IZN’s shareholder registry.
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. Generally, an institutional ownership of 5.05%, in the case of IZN, should not concern investors in terms of high stock volatility. But investors should also check whether hedge funds, mostly active investors with a short-term horizon, have a significant stake. They own 5.97% of IZN’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. A major group of owners of IZN is individual insiders, sitting with a hefty 10.09% stake in the company. Broadly, insider ownership of this level has been found to negatively affect companies with consistently low PE ratio (underperforming). And a positive impact has been seen on companies with a high PE ratio (outperforming). Another aspect of insider ownership is to learn about their recent transactions. 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
A substantial ownership of 77.52% in IZN is held by the general public. 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 Company Ownership
Another important group of owners for potential investors in IZN are private companies that hold a stake of 1.38% in IZN. These are companies that are mainly invested due to their strategic interests or are incentivized by reaping capital gains on investments their shareholdings. However, an ownership of this size may be relatively insignificant, meaning that these shareholders may not have the potential to influence IZN’s business strategy. Thus, investors not need worry too much about the consequences of these holdings.
Although IZN has a low level of overall institutional ownership, active hedge funds still have a significant stake in the company. Their ownership is a non-fundamental factor, which can impact IZN’s price volatility in the short-term, considering this group investors may come under pressure to deliver in the short term. An investment in IZN should come with enough margin of safety in order to avoid significant dips in shareholding value. However, ownership structure should not be the only determining factor when you’re building an investment thesis for IZN. Rather, you should be examining fundamental factors such as the intrinsic valuation, which is a key driver of InZinc Mining’s share price. I highly recommend you to complete your research by taking a look at the following:
- Financial Health: Is IZN’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 IZN 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 IZN’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.