Today, I will be analyzing China Jo-Jo Drugstores Inc’s (NASDAQ:CJJD) recent ownership structure, an important but not-so-popular subject among individual investors. 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 CJJD’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. CJJD hardly has any institutional ownership, leaving investors little to think about sharp volatility in the stock that could take place due to institutional trading. Another important owner type is hedge funds, who tend to be investors with short-term horizons. With 19.20% ownership in CJJD, they seem to have a significant enough holding to cause a spike in volatility in the short run. 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.
I find insiders are another important group of stakeholders, who are directly involved in making key decisions related to the use of capital. In essence, insider ownership is more about the alignment of shareholders’ interests with the management. A major group of owners of CJJD is individual insiders, sitting with a hefty 14.58% 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. Insiders buying company shares can be a positive indicator of future performance, but a selling decision can simply be driven by personal financial needs.
General Public Ownership
The general public holds a substantial 36.50% stake in CJJD, making it a highly popular stock among retail investors. 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
Potential investors in CJJD should also look at another important group of investors: private companies, with a stake of 28.92%, who are primarily invested because of strategic and capital gain interests. An ownership of this size indicates a strong financial backing and has the potential to influence CJJD’s business strategy. Thus, investors should dig deeper into CJJD’s business relations with these companies and how it can affect shareholder returns in the long-term.
While CJJD has a low level of institutional ownership, active hedge funds still hold a significant stake in the company. Their ownership is a non-fundamental factor, which can impact CJJD’s price volatility in the short-term, considering this group investors may come under pressure to deliver in the short term. An investment in CJJD should come with enough margin of safety in order to avoid significant dips in shareholding value. However, ownership structure should not be the only focus of your research when constructing an investment thesis around CJJD. Instead, you should be evaluating company-specific factors such as the intrinsic valuation, which is a key driver of China Jo-Jo Drugstores’s share price. I urge you to complete your research by taking a look at the following:
- Financial Health: Is CJJD’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 CJJD 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 CJJD’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.