Should You Be Concerned About Lithium Consolidated Mineral Exploration Limited’s (ASX:LI3) Shareholders?

Lester Strauss

Updated Fri, Feb 2, 2018, 7:15 PM

In this analysis, my focus will be on developing a perspective on Lithium Consolidated Mineral Exploration Limited’s (ASX:LI3) latest ownership structure, a less discussed, but important factor. Ownership structure of a company has been found to affect share performance over time. Since the same amount of capital coming from an activist institution and a passive mutual fund has different implications on corporate governance, it is a useful exercise to deconstruct LI3’s shareholder registry. All data provided is as of the most recent financial year end.

See our latest analysis for Lithium Consolidated Mineral Exploration

Institutional Ownership

Institutional investors are one of the largest group of market participants and their buy-sell decisions on a company’s stock can significantly impact prices, more so, when there are relatively small amounts of shares available on the market to trade. With an institutional ownership of 2.05%, LI3 doesn’t seem too exposed to higher volatility resulting from institutional trading. Low coverage stocks like LI3 tend to be favourite picks of legendary investor Peter Lynch, who used to cash in on the rally supported by institutional buying as the stock gained popularity.

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. 19.13% ownership of LI3 insiders is large enough to make an impact on shareholder returns. In general, this level of insider ownership has negatively affected underperforming (consistently low PE ratio) companies and positively affected the companies that outperform (consistently high PE ratio). It’s also interesting to learn what LI3 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

A substantial ownership of 31.66% in LI3 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 Company Ownership

Potential investors in LI3 should also look at another important group of investors: private companies, with a stake of 46.94%, who are primarily invested because of strategic and capital gain interests. An ownership of this size indicates a strong financial backing and has the potential to influence LI3’s business strategy. Thus, investors should dig deeper into LI3’s business relations with these companies and how it can affect shareholder returns in the long-term.

What this means for you:

Institutional ownership level and composition in LI3 is not high nor active enough to significantly impact its investment thesis. However, if you are building an investment case for LI3, ownership structure alone should not dictate your decision to buy or sell the stock. Instead, you should be evaluating company-specific factors such as the intrinsic valuation, which is a key driver of Lithium Consolidated Mineral Exploration’s share price. I urge you to complete your research by taking a look at the following:

1. Financial Health: Is LI3’s operations financially sustainable? Balance sheets can be hard to analyze, which is why we’ve done it for you. Check out our financial health checks here.
2. Valuation: What is LI3 worth today? Is the stock undervalued, even when its growth outlook is factored into its intrinsic value? The intrinsic value infographic in our free research report helps visualize whether LI3 is currently mispriced by the market.
3. Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.

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.