I am going to take a deep dive into Altisource Asset Management Corporation’s (AMEX:AAMC) most recent ownership structure, not a frequent subject of discussion among individual investors. Ownership structure of a company has been found to affect share performance over time. Since the same amount of capital coming from an activist institution and a passive mutual fund has different implications on corporate governance, it is a useful exercise to deconstruct AAMC’s shareholder registry.
With an institutional ownership of 34.51%, AAMC 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 6.21% stake in the company, which may be the cause of high short-term volatility in the stock price. We should dig deeper into the company’s ownership structure to find how the rest of its ownership structure can impact 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. A major group of owners of AAMC is individual insiders, sitting with a hefty 12.82% stake in the company. Broadly, insider ownership of this level has been found to negatively affect companies with consistently low PE ratio (underperforming). And a positive impact has been seen on companies with a high PE ratio (outperforming). 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, with 6.08% stake, is also an important group of shareholders in AAMC. This size of ownership, while considerably large for a public company, may not be enough to change company policy if the decision is not in sync with other large shareholders.
Private Company Ownership
Another group of owners that a potential investor in AAMC should consider are private companies, with a stake of 40.33%. While they invest more often due to strategic interests, an investment can also be driven by capital gains through share price appreciation. This kind of ownership, if predominantly strategic, can give these companies a significant power to affect AAMC’s business strategy. Thus, potential investors should look into these business relations and check how it can impact long-term shareholder returns.
With significant institutional ownership, including active hedge, existing investors should seek a margin of safety when investing in AAMC. 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, ownership structure should not be the only focus of your research when constructing an investment thesis around AAMC. Instead, you should be evaluating company-specific factors such as Altisource Asset Management’s past track record and financial health. I highly recommend you to complete your research by taking a look at the following:
- Financial Health: Is AAMC’s operations financially sustainable? Balance sheets can be hard to analyze, which is why we’ve done it for you. Check out our financial health checks here.
- Past Track Record: Has AAMC 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 AAMC’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.