I am going to take a deep dive into Armour Energy Limited’s (ASX:AJQ) 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, and whether they adhere to corporate governance best practices. Although this is an important factor for long-term investors, many investors can also be impacted by institutional presence and their high-volume trading. Now I will analyze AJQ’s shareholder registry in more detail.
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Institutions account for 10.93% of AJQ’s outstanding shares, a significant enough holding to move stock prices if they start buying and selling in large quantities, especially 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. For shareholders in AJQ, sharp price movements may not be a major concern as the primarily active ones, hedge funds, hardly hold a mentionable stake in the company. Although this doesn’t necessarily lead to high short-term volatility, we should dig deeper into AJQ’s ownership structure to find how the remaining owner types can affect its investment profile.
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. Although individuals in AJQ hold only a 4.94% stake, it’s a good sign for shareholders as the company’s executives and directors have their incentives directly linked to the company’s performance. I will also like to check what insiders have been doing recently with their holdings. 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 54.85% in AJQ 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. Such 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
Another important group of owners for potential investors in AJQ are private companies that hold a stake of 6.94% in AJQ. These are companies that are mainly invested due to their strategic interests or are incentivized by reaping capital gains on investments their shareholdings. An ownership of this size indicates a strong financial backing and has the potential to influence AJQ’s business strategy. Thus, investors should dig deeper into AJQ’s business relations with these companies and how it can affect shareholder returns in the long-term.
AJQ’s considerably high level of institutional ownership calls for further analysis into its margin of safety. This is to avoid getting trapped in a sustained sell-off that is often observed in stocks with this level of institutional participation. However, other important factors we must never forget to assess are the fundamentals. I recommend you take a look at our latest free analysis report on Armour Energy to see AJQ’s fundamentals and whether it could be considered an undervalued opportunity.
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