In this article, I will take a quick look at Kingsway Financial Services Inc’s (TSX:KFS) recent ownership structure – an unconventional investing subject, but an important one. When it comes to ownership structure of a company, the impact has been observed in both the long-and short-term performance of shares. Differences in ownership structure of companies can have a profound effect on how management’s incentives are aligned with shareholder returns, which is why we’ll take a moment to analyse KFS’s shareholder registry.
Institutional investors transact in large blocks which can influence the momentum of stock prices, at least in the short-term, especially when there is a low level of public shares available on the market to trade. KFS has institutions holding a stake of just 9.12%, 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 40.52% of KFS’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.
Another important group of shareholders are company insiders. Insider ownership has to do more with how the company is managed and less to do with the direct impact of the magnitude of shares trading on the market. KFS insiders hold a significant stake of 30.17% in the company. This level of insider ownership has been found to have a negative impact on companies with consistently low PE ratios (underperformers), while it has been positive in the case of high PE ratio firms (outperformers). Another aspect of insider ownership is to learn about their recent transactions. 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.
General Public Ownership
A big stake of 20.17% in KFS 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 KFS are private companies that hold a stake of 0.014% in KFS. 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 KFS’s business strategy. Thus, investors not need worry too much about the consequences of these holdings.
While KFS has a low level of institutional ownership, active hedge funds still hold a significant stake in the company. The participation of these active investors has been linked to the volatile nature of share prices. A factor to consider is whether KFS offers enough margin of safety compared to its intrinsic value. However, ownership structure should not be the only focus of your research when constructing an investment thesis around KFS. Instead, you should be evaluating company-specific factors such as Kingsway Financial Services’s past track record and financial health. I urge you to complete your research by taking a look at the following:
- Financial Health: Is KFS’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 KFS 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 KFS’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.