Today, I will be analyzing DropCar Inc’s (NASDAQ:DCAR) recent ownership structure, an important but not-so-popular subject 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 DCAR’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. With a not-so-big institutional ownership of 3.70%, DCAR is not too exposed to price volatility that may arise from institutional trading. But investors should also check whether hedge funds, mostly active investors with a short-term horizon, have a significant stake. They own 9.99% of DCAR’s outstanding shares, enough to cause a spike in volatility, at least in the short-term. 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. 18.49% ownership of DCAR 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 64.76% stake in DCAR, 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.
Private Company Ownership
Another important group of owners for potential investors in DCAR are private companies that hold a stake of 3.06% in DCAR. 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 DCAR’s business strategy. Thus, investors not need worry too much about the consequences of these holdings.
While DCAR 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. An investment in DCAR 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 DCAR. Instead, you should be evaluating company-specific factors such as the intrinsic valuation, which is a key driver of DropCar’s share price. I urge you to complete your research by taking a look at the areas below. Just a heads up – to access some parts of the Simply Wall St research tool you might be asked to create a free account, but it takes just one click and the information they provide is definitely worth it in my opinion.
- 1. Financial Health: Is DCAR’s operations financially sustainable? Balance sheets can be hard to analyze, which is why Simply Wall St does it for us. Check out important financial health checks here.
- 2. Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore a 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.