In this article, I’m going to take a look at NII Holdings Inc’s (NASDAQ:NIHD) latest ownership structure, a non-fundamental factor which is important, but remains a less discussed subject among investors. The impact of a company’s ownership structure affects both its short- and long-term performance. 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 XYZ’s shareholder registry. All data provided is as of the most recent financial year end.
In NIHD’s case, institutional ownership stands at 73.02%, significant enough to cause considerable price moves in the case of large institutional transactions, especially when there is a low level of public shares available on the market to trade. Although NIHD has a high institutional ownership, such stock moves, in the short-term, are more commonly linked to a particular type of active institutional investors – hedge funds. With hedge funds holding a 10.88% stake in the company, its share price can experience heightened volatility. I am going to further examine NIHD’s ownership structure to check how other major shareholders can affect its investment case.
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. Although individuals in NIHD hold only a minor stake, it’s a good sign for shareholders as the company’s executives and directors have their incentives directly linked to the company’s performance. In addition to this, it may be interesting to look at insider buying and selling activities. Keep in mind that buying may be sign of upbeat future expectations, but selling doesn’t necessarily mean the opposite as the insiders might just be doing it out of their personal financial needs.
General Public Ownership
A big stake of 15.56% in NIHD 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.
What this means for you:
Are you a shareholder? I suggest investors seek some degree of margin of safety due to high institutional ownership in NIHD, in particular due to the strong presence of active hedge fund investors. This is to avoid getting trapped in a sustained sell-off that is often observed in stocks with this level of institutional participation. If you’re interested in bolstering your portfolio with new stocks and are looking for ideas, take a look at our free app to see my list of stocks with a strong growth potential.
Are you a potential investor? Ownership structure should not be the only focus of your research when constructing an investment thesis around NIHD. Instead, you should be evaluating fundamental factors like the relative valuation of NIHD, which is an important driver that determines NIHD’s share price. Take a look at our most recent infographic report on NIHD for a more in-depth analysis of these factors to help you make a more well-informed investment decision.
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.