In this article, I will take a quick look at Issuer Direct Corporation’s (NYSEMKT:ISDR) recent ownership structure – an unconventional investing subject, but an important one. Ownership structure has been found to have an impact on shareholder returns in both short- and long-term. The same amount of capital coming from an activist institution and a passive mutual fund has different implications on corporate governance, which is a decisive factor for a long-term investor. It also impacts the trading environment of company shares, which is more of a concern for short-term investors. Therefore, it is beneficial for us to examine ISDR’s ownership structure in more detail.
With an institutional ownership of 10.5%, ISDR can face volatile stock price movements if institutions execute block trades on the open market, more so, when there are relatively small amounts of shares available on the market to trade However, as not all institutions are alike, such high volatility events, especially in the short-term, have been more frequently linked to active market participants like hedge funds. Hedge funds, considered active investors, hold a 5.8% stake in the company, which may be the cause of high short-term volatility in the stock price. I am going to further examine ISDR’s ownership structure to check how other major shareholders can affect its investment case.
I find insiders are an 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. ISDR insiders hold a significant stake of 29.0% 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). It’s also interesting to learn what ISDR insiders have been doing with their shareholdings lately. 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
A substantial ownership of 47.4% in ISDR is held by the general public. 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.
Public Company Ownership
Another important group of owners for potential investors in ISDR are other public companies that hold a stake of 7.2% in ISDR. These are the companies that are mainly invested due to their strategic interests or incentivized by reaping capital gains on investments. This kind of ownership, if predominantly strategic, can give these companies a significant power to affect ISDR’s business strategy. Thus, potential investors should look into these business relations and check how it can impact long-term shareholder returns.
I suggest investors seek some degree of margin of safety due to high institutional ownership in ISDR, in particular due to the strong presence of active hedge fund investors. This may enable shareholders to comfortably invest in the company and avoid getting trapped in a sustained sell-off that is often observed in stocks with this level of institutional participation. However, if you are building an investment case for ISDR, ownership structure alone should not dictate your decision to buy or sell the stock. Rather, you should be looking at fundamental drivers such as the intrinsic valuation, which is a key driver of Issuer Direct’s share price. I highly recommend you to complete your research by taking a look at the following:
- Future Outlook: What are well-informed industry analysts predicting for ISDR’s future growth? Take a look at our free research report of analyst consensus for ISDR’s outlook.
- Past Track Record: Has ISDR 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 ISDR’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 past 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. For errors that warrant correction please contact the editor at firstname.lastname@example.org.