CStone Pharmaceuticals’ (HKG:2616) stock price dropped 31% last week; private equity firms would not be happy

Key Insights

• The considerable ownership by private equity firms in CStone Pharmaceuticals indicates that they collectively have a greater say in management and business strategy
• A total of 5 investors have a majority stake in the company with 54% ownership
• Institutional ownership in CStone Pharmaceuticals is 12%

Every investor in CStone Pharmaceuticals (HKG:2616) should be aware of the most powerful shareholder groups. The group holding the most number of shares in the company, around 40% 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.

And last week, private equity firms endured the biggest losses as the stock fell by 31%.

Let’s delve deeper into each type of owner of CStone Pharmaceuticals, beginning with the chart below.

View our latest analysis for CStone Pharmaceuticals

What Does The Institutional Ownership Tell Us About CStone Pharmaceuticals?

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.

CStone Pharmaceuticals 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 CStone Pharmaceuticals’ earnings history below. Of course, the future is what really matters.

Hedge funds don’t have many shares in CStone Pharmaceuticals. Looking at our data, we can see that the largest shareholder is 6 Dimensions Capital, L.P. with 23% of shares outstanding. Meanwhile, the second and third largest shareholders, hold 11% and 9.1%, of the shares outstanding, respectively. Additionally, the company’s CEO Jianxin Yang directly holds 0.9% of the total shares outstanding.

Our research also brought to light the fact that roughly 54% of the company is controlled by the top 5 shareholders suggesting that these owners wield significant influence on the business.

Researching institutional ownership is a good way to gauge and filter a stock’s expected performance. The same can be achieved by studying analyst sentiments. While there is some analyst coverage, the company is probably not widely covered. So it could gain more attention, down the track.

Insider Ownership Of CStone Pharmaceuticals

The definition of company insiders can be subjective and does vary between jurisdictions. Our data reflects individual insiders, capturing board members at the very least. 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.

We can report that insiders do own shares in CStone Pharmaceuticals. In their own names, insiders own HK$55m worth of stock in the HK$1.4b company. This shows at least some alignment, but we usually like to see larger insider holdings. You can click here to see if those insiders have been buying or selling.

General Public Ownership

The general public– including retail investors — own 35% stake in the company, and hence can’t easily be ignored. 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

Private equity firms hold a 40% stake in CStone Pharmaceuticals. This suggests they can be influential in key policy decisions. Some might like this, because private equity are sometimes activists who hold management accountable. But other times, private equity is selling out, having taking the company public.

Public Company Ownership

Public companies currently own 9.1% of CStone Pharmaceuticals stock. 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:

While it is well worth considering the different groups that own a company, there are other factors that are even more important. Take risks for example – CStone Pharmaceuticals has 2 warning signs we think you should be aware of.

But ultimately it is the future, not the past, that will determine how well the owners of this business will do. Therefore we think it advisable to take a look at this free report showing whether analysts are predicting a brighter 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.

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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.