I am going to take a deep dive into Auris Medical Holding AG’s (NASDAQ:EARS) most recent ownership structure, not a frequent subject of discussion among individual investors. A company’s ownership structure is often linked to its share performance in both the long- and short-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 EARS’s shareholder registry. All data provided is as of the most recent financial year end.
With an institutional ownership of 12.84%, EARS 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 5.64% stake in the company, which may be the cause of high short-term volatility in the stock price. But I also examine other ownership types and their potential impact on EARS’s investment case.
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. EARS insiders hold a significant stake of 16.59% 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
A substantial ownership of 35.15% in EARS is held by the general public. 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 Equity Ownership
With a stake of 29.78%, private equity firms form another important class of owners in EARS. With a stake of 29.78%, they can influence EARS’s key policy decisions. This is a positive sign for potential investors as these firms play an important role in aligning company policy with shareholder returns.
What this means for you:
Are you a shareholder? I suggest investors seek some degree of margin of safety due to high institutional ownership in EARS, 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. If you’re interested in bolstering your portfolio with new stocks and are looking for ideas, take a look at our free app to see my list of stocks with a strong growth potential.
Are you a potential investor? If you are building an investment case for EARS, ownership structure alone should not dictate your decision to buy or sell the stock. Instead, you should be evaluating fundamental factors like the relative valuation of EARS, which is an important driver that determines EARS’s share price. Take a look at our most recent infographic report on EARS 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.