I am going to take a deep dive into MMJ PhytoTech Limited’s (ASX:MMJ) 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 MMJ’s shareholder registry. All data provided is as of the most recent financial year end.
Institutional investors typically buy and sell shares in large magnitudes which can significantly sway the share price, especially when there are relatively small amounts of shares available on the market to trade. With an institutional ownership of 6.78%, MMJ doesn’t seem too exposed to higher volatility resulting from institutional trading. Low coverage stocks like MMJ tend to be favourite picks of legendary investor Peter Lynch, who used to cash in on the rally supported by institutional buying as the stock gained popularity.
I find insiders are another 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. MMJ insiders are also influential stakeholders with 6.49% ownership in the company. An insider stake of this level indicates that executives are highly aligned with the shareholders as both stand to gain when the value of the company rises. It may be interesting to see what insiders have been doing with their shares lately. Insiders buying shares can be a positive indicator of future performance, but a selling decision can be simply driven by personal financial needs.
General Public Ownership
A substantial ownership of 81.96% in MMJ 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 Company Ownership
Potential investors in MMJ should also look at another important group of investors: private companies, with a stake of 4.77%, who are primarily invested because of strategic and capital gain interests. However, an ownership of this size may be relatively insignificant, meaning that these shareholders may not have the potential to influence MMJ’s business strategy. Thus, investors not need worry too much about the consequences of these holdings.
What this means for you:
Are you a shareholder? Institutional ownership level and composition in MMJ is not high nor active enough to significantly impact its investment thesis. If you’re looking to diversify your holdings with high-quality stocks, our free analysis platform has a selection of high-quality stocks with a strong growth potential.
Are you a potential investor? If you are building an investment case for MMJ, ownership structure alone should not dictate your decision to buy or sell the stock. Rather, you should be examining fundamental factors like the intrinsic valuation of MMJ, which is a key driver of MMJ’s share price. Take a look at our most recent infographic report on MMJ 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.