Today, I will be analyzing Purple Innovation Inc’s (NASDAQ:PRPL) recent ownership structure, an important but not-so-popular subject among individual investors. When it comes to ownership structure of a company, the impact has been observed in both the long-and short-term performance of shares. 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 PRPL’s shareholder registry.

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Institutional Ownership

Institutional investors transact in large blocks which can influence the momentum of stock prices, at least in the short-term, especially when there is a low level of public shares available on the market to trade. Generally, an institutional ownership of 8.46%, in the case of PRPL, should not concern investors in terms of high stock volatility. But investors should also check whether hedge funds, mostly active investors with a short-term horizon, have a significant stake. They own 85.40% of PRPL’s outstanding shares, enough to cause a spike in volatility, at least in the short-term. However, I would also examine the rest of its ownership structure in more detail to determine how the company’s major shareholders can affect its investment case.

Insider Ownership

I find insiders are another important group of stakeholders, who are directly involved in making key decisions related to the use of capital. In essence, insider ownership is more about the alignment of shareholders’ interests with the management. PRPL insiders hold a significant stake of 14.65% in the company. This level of insider ownership has been found to have a negative impact on companies with consistently low PE ratios (underperformers), while it has been positive in the case of high PE ratio firms (outperformers). It’s also interesting to learn what PRPL 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.

Next Steps:

While PRPL has a low level of institutional ownership, active hedge funds still hold a significant stake in the company. This level of ownership is a non-fundamental factor that can impact stock prices in the short-term. A factor to consider is whether PRPL offers enough margin of safety compared to its intrinsic value. However, ownership structure should not be the only focus of your research when constructing an investment thesis around PRPL. Instead, you should be evaluating company-specific factors such as Purple Innovation’s past track record and financial health. I highly recommend you to complete your research by taking a look at the following: