Home Hedge Funds scPharmaceuticals Inc.’s (NASDAQ:SCPH) stock price dropped 10% last week; private equity firms...

scPharmaceuticals Inc.’s (NASDAQ:SCPH) stock price dropped 10% last week; private equity firms would not be happy


Key Insights

  • Significant control over scPharmaceuticals by vc/pe firms implies that this group likely has considerable sway over management and governance-related decisions
  • The top 6 shareholders own 55% of the company
  • Ownership research along with analyst forecasts data help provide a good understanding of opportunities in a stock

To get a sense of who is truly in control of scPharmaceuticals Inc. (NASDAQ:SCPH), it is important to understand the ownership structure of the business. The group holding the most number of shares in the company, around 41% to be precise, is private equity firms. In other words, the group stands to gain the most (or lose the most) from their investment into the company.

As a result, private equity firms as a group endured the highest losses last week after market cap fell by US$22m.

In the chart below, we zoom in on the different ownership groups of scPharmaceuticals.

View our latest analysis for scPharmaceuticals

NasdaqGS:SCPH Ownership Breakdown January 28th 2023

What Does The Institutional Ownership Tell Us About scPharmaceuticals?

Institutions typically measure themselves against a benchmark when reporting to their own investors, so they often become more enthusiastic about a stock once it’s included in a major index. We would expect most companies to have some institutions on the register, especially if they are growing.

scPharmaceuticals already has institutions on the share registry. Indeed, they own a respectable stake in the company. This can indicate that the company has a certain degree of credibility in the investment community. However, it is best to be wary of relying on the supposed validation that comes with institutional investors. They too, get it wrong sometimes. If multiple institutions change their view on a stock at the same time, you could see the share price drop fast. It’s therefore worth looking at scPharmaceuticals’ earnings history below. Of course, the future is what really matters.

NasdaqGS:SCPH Earnings and Revenue Growth January 28th 2023

Our data indicates that hedge funds own 7.3% of scPharmaceuticals. That worth noting, since hedge funds are often quite active investors, who may try to influence management. Many want to see value creation (and a higher share price) in the short term or medium term. Looking at our data, we can see that the largest shareholder is OrbiMed Advisors LLC with 16% of shares outstanding. Lundbeckfonden BioCapital is the second largest shareholder owning 9.3% of common stock, and 5AM Venture Management, LLC holds about 8.0% of the company stock.

We did some more digging and found that 6 of the top shareholders account for roughly 55% of the register, implying that along with larger shareholders, there are a few smaller shareholders, thereby balancing out each others interests somewhat.

While studying institutional ownership for a company can add value to your research, it is also a good practice to research analyst recommendations to get a deeper understand of a stock’s expected performance. Quite a few analysts cover the stock, so you could look into forecast growth quite easily.

Insider Ownership Of scPharmaceuticals

While the precise definition of an insider can be subjective, almost everyone considers board members to be insiders. Management ultimately answers to the board. However, it is not uncommon for managers to be executive board members, especially if they are a founder or the CEO.

Most consider insider ownership a positive because it can indicate the board is well aligned with other shareholders. However, on some occasions too much power is concentrated within this group.

Our data suggests that insiders own under 1% of scPharmaceuticals Inc. in their own names. It has a market capitalization of just US$194m, and the board has only US$861k worth of shares in their own names. Many investors in smaller companies prefer to see the board more heavily invested. You can click here to see if those insiders have been buying or selling.

General Public Ownership

With a 36% ownership, the general public, mostly comprising of individual investors, have some degree of sway over scPharmaceuticals. While this size of ownership may not be enough to sway a policy decision in their favour, they can still make a collective impact on company policies.

Private Equity Ownership

With a stake of 41%, private equity firms could influence the scPharmaceuticals board. Some investors might be encouraged by this, since private equity are sometimes able to encourage strategies that help the market see the value in the company. Alternatively, those holders might be exiting the investment after taking it public.

Public Company Ownership

We can see that public companies hold 6.4% of the scPharmaceuticals shares on issue. We can’t be certain but it is quite possible this is a strategic stake. The businesses may be similar, or work together.

Next Steps:

It’s always worth thinking about the different groups who own shares in a company. But to understand scPharmaceuticals better, we need to consider many other factors. Take risks for example – scPharmaceuticals has 3 warning signs (and 1 which is potentially serious) we think you should know about.

If you are like me, you may want to think about whether this company will grow or shrink. Luckily, you can check this free report showing analyst forecasts for its future.

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.

Valuation is complex, but we’re helping make it simple.

Find out whether scPharmaceuticals is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

View the Free Analysis

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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