Breaking Down Madrigal Pharmaceuticals Inc’s (MDGL) Ownership Structure

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Declan Brown

Updated Wed, Nov 22, 2017, 6:00 PM

In this article, I will take a quick look at Madrigal Pharmaceuticals Inc’s (NASDAQ:MDGL) recent ownership structure – an unconventional investing subject, but an important one. Ownership structure of a company has been found to affect share performance over time. Since 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 of shareholders, investors should take a closer look at MDGL’s shareholder registry. All data provided is as of the most recent financial year end.

See our latest analysis for MDGL

NasdaqCM:MDGL Ownership Summary Nov 23rd 17

Institutional Ownership

Institutions account for 21.75% of MDGL’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. In the case of MDGL, investors need not worry about such volatility considering active hedge funds don’t have a significant stake. However, we should dig deeper into MDGL’s ownership structure and find out how other key ownership classes can affect its investment profile.

Insider Ownership

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. With 7.99% ownership, MDGL insiders is an important ownership type. An insider stake of this level indicates that executives are highly aligned with the shareholders as both stand to gain when the value of the company rises. It may be interesting to see what insiders have been doing with their shares lately. Insiders buying shares can be a positive indicator of future performance, but a selling decision can be simply driven by personal financial needs.

NasdaqCM:MDGL Insider Trading Nov 23rd 17

General Public Ownership

A substantial ownership of 19.15% in MDGL 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.

Private Equity Ownership

Private equity firms hold a 45.28% stake in MDGL. With a stake of this size, they can be influential in key policy decisions. This is a positive sign for potential investors as these firms play an important role in aligning company policy with shareholder returns.

Private Company Ownership

Potential investors in MDGL should also look at another important group of investors: private companies, with a stake of 5.83%, who are primarily invested because of strategic and capital gain interests. With this size of ownership in MDGL, this ownership class can affect the company’s business strategy. As a result, potential investors should further explore the company’s business relations with these companies and find out if they can affect shareholder returns in the long-term.

What this means for you:

MDGL’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, if you are building an investment case for MDGL, ownership structure alone should not dictate your decision to buy or sell the stock. Rather, you should be examining fundamental factors such as Madrigal Pharmaceuticals’s past track record and financial health. I highly recommend you to complete your research by taking a look at the following:

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.
To help readers see pass the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price sensitive company announcements.

The author is an independent contributor and at the time of publication had no position in the stocks mentioned.