In this article, I will take a quick look at Hempco Food and Fiber Inc’s (TSXV:HEMP) recent ownership structure – an unconventional investing subject, but an important one. The impact of a company’s ownership structure affects both its short- and long-term performance. If an activist institution invests the same amount of capital in a stock as a passive long-term pension fund, the implications are potentially different for key corporate financing decisions such as the use of excess cash or the source of financing. While these are more of a long-term investor’s concern, short-term investors may find the impact of institutional trading overwhelming enough to lose out on what could be a potential opportunity. Therefore, it is beneficial for us to examine HEMP’s ownership structure in more detail.
Another important group of shareholders are company insiders. Insider ownership has to do more with how the company is managed and less to do with the direct impact of the magnitude of shares trading on the market. One of the major owners in HEMP are individual insiders, sitting with a hefty 57.09% 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). It’s also interesting to learn what HEMP insiders have been doing with their shareholdings lately. Insiders buying company shares can be a positive indicator of future performance, but a selling decision can simply be driven by personal financial needs.
General Public Ownership
The general public holds a substantial 42.91% stake in HEMP, making it a highly popular stock among retail investors. 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.
A relatively significant holding of company insiders could mean high alignment with shareholders. But at the same time, potential investors should be aware of the level of influence executives could have on governance decisions. 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 Hempco Food and Fiber to see HEMP’s fundamentals and whether it could be considered an undervalued opportunity.
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