In this article, I will take a quick look at Sky Solar Holdings Ltd’s (NASDAQ:SKYS) recent ownership structure – an unconventional investing subject, but an important one. 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 SKYS’s shareholder registry.
Due to the big order sizes of institutional investors, a company’s shares can experience large, one-sided momentum, driven by high volume of shares removed from, or injected into, the market. With a not-so-big institutional ownership of 3.33%, SKYS 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 7.15% of SKYS’s outstanding shares, enough to cause a spike in volatility, at least in the short-term. However, I would also examine the rest of its ownership structure in more detail to determine how the company’s major shareholders can affect its 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. 24.46% ownership of SKYS 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). 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 40.76% stake in SKYS, 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 Equity Ownership
With a stake of 24.30%, private equity firms form another important class of owners in SKYS. With a stake of 24.30%, they can influence SKYS’s key policy decisions. This is an encouraging sign for investors as these investors tend to be active strategist in companies, focusing on increasing operational and capital efficiency for the firm.
While SKYS 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. It is important that SKYS offers enough margin of safety in order to avoid a significant portfolio impact resulting from a sustained sell-off and drop in share value. However, if you are building an investment case for SKYS, 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 Sky Solar Holdings’s share price. I urge you to complete your research by taking a look at the following:
- Future Outlook: What are well-informed industry analysts predicting for SKYS’s future growth? Take a look at our free research report of analyst consensus for SKYS’s outlook.
- Past Track Record: Has SKYS 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 SKYS’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.