I am going to take a deep dive into The9 Limited’s (NASDAQ:NCTY) most recent ownership structure, not a frequent subject of discussion among individual investors. Ownership structure has been found to have an impact on shareholder returns in both short- and long-term. 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 XYZ’s shareholder registry. All data provided is as of the most recent financial year end.
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. With hardly any institutional ownership, NCTY stock poses limited concern relating to the effect institutional block trades have on its stock price.
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. 20.27% ownership of NCTY insiders is large enough to make an impact on shareholder returns. In general, this level of insider ownership has negatively affected underperforming (consistently low PE ratio) companies and positively affected the companies that outperform (consistently high PE ratio). It may be interesting to take a look at what company insiders have been doing with their holdings lately. 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 48.14% stake in NCTY, 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. Such 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.
Private Equity Ownership
With an ownership of 12.94%, private equity firms are a major stakeholder in NCTY and are in a position to play an important role in shaping up corporate strategy with a focus on value creation. This is a positive sign for potential investors as these firms play an important role in aligning company policy with shareholder returns.
Private Company Ownership
Another important group of owners for potential investors in NCTY are private companies that hold a stake of 18.20% in NCTY. These are companies that are mainly invested due to their strategic interests or are incentivized by reaping capital gains on investments their shareholdings. With this size of ownership in NCTY, this ownership class can affect the company’s business strategy. As a result, potential investors should further explore the company’s business relations with these companies and find out if they can affect shareholder returns in the long-term.
What this means for you:
Are you a shareholder? With a low level of institutional ownership, investors in NCTY need not worry about non-fundamental factors such as ownership structure causing large impact on stock prices. Looking for ways to reinforce your current portfolio holdings? Take a look at our free platform for a 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 NCTY. Rather, you should be examining fundamental factors like the intrinsic valuation of NCTY, which is a key driver of NCTY’s share price. Take a look at our most recent infographic report on NCTY 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.