Today, I will be analyzing American Superconductor Corporation’s (NASDAQ:AMSC) recent ownership structure, an important but not-so-popular subject among individual investors. Ownership structure has been found to have an impact on shareholder returns in both short- and long-term. The effect of an active institutional investor with a similar ownership as a passive pension-fund can be vastly different on a company’s corporate governance and accountability to shareholders. While this may be more interesting for long-term investors, short-term investors can also benefit by paying attention to when these institutions trade in order to take advantage of the heightened volatility. Now I will analyze AMSC’s shareholder registry in more detail.
In AMSC’s case, institutional ownership stands at 27.46%, significant enough to cause considerable price moves in the case of large institutional transactions, especially when there is a low level of public shares available on the market to trade. These moves, at least in the short-term, are generally observed in an institutional ownership mix comprising of active stock pickers, in particular levered hedge funds, which can cause large price swings. With hedge funds holding a 7.11% stake in the company, its share price can experience heightened volatility. But I also examine other ownership types and their potential impact on AMSC’s investment case.
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. A major group of owners of AMSC is individual insiders, sitting with a hefty 13.87% 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). 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 big stake of 51.57% in AMSC 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.
What this means for you:
Are you a shareholder? With significant institutional ownership, including active hedge, existing investors should seek a margin of safety when investing in AMSC. This will allow an investor to reduce the impact of non-fundamental factors, such as volatile block trading impact on their portfolio value. Looking for ways to reinforce your current portfolio holdings? Take a look at our free platform for a list of stocks with a strong growth potential.
Are you a potential investor? Ownership structure should not be the only determining factor when you’re building an investment thesis for AMSC. Rather, you should be examining fundamental factors like the intrinsic valuation of AMSC, which is a key driver of AMSC’s share price. Take a look at our most recent infographic report on AMSC for a more in-depth analysis of these factors to help you make a more well-informed investment decision.