Today, I will be analyzing CCA Industries Inc’s (AMEX:CAW) recent ownership structure, an important but not-so-popular subject among individual investors. A company’s ownership structure is often linked to its share performance in both the long- and short-term. Since the effect of an active institutional investor with a similar ownership as a passive pension-fund can be vastly different on a company’s corporate governance and accountability of shareholders, investors should take a closer look at CAW’s shareholder registry. All data provided is as of the most recent financial year end.
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. Generally, an institutional ownership of 9.73%, in the case of CAW, should not concern investors in terms of high stock volatility. But another factor to consider is the presence of hedge funds, who are notorious for active investing. In CAW’s case, they make up 11.08% of ownership, indicating potential sharp stock price movements during significant transactions. I am going to further examine the stock’s other major shareholders to figure out how they can affect the company’s investment profile 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. CAW insiders hold a significant stake of 17.00% 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. 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
The general public holds a substantial 62.19% stake in CAW, making it a highly popular stock among retail investors. This size of ownership gives retail investors collective power in deciding on major policy decisions such as executive compensation, appointment of directors and acquisitions of businesses. This level of ownership gives retail investors the power to sway key policy decisions such as board composition, executive compensation, and potential acquisitions. This is a positive sign for an investor who wants to be involved in key decision-making of the company.
What this means for you:
Although CAW 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 CAW’s price volatility in the short-term, considering this group investors may come under pressure to deliver in the short term. An investment in CAW 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 CAW. Rather, you should be examining fundamental factors such as the intrinsic valuation, which is a key driver of CCA Industries’s share price. I urge you to complete your research by taking a look at the following:
- 1. Financial Health: Is CAW’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.
- 2. Past Track Record: Has CAW 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 CAW’s historicals for more clarity.
- 3. 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.