Who Really Owns Echo Resources Limited (ASX:EAR)?

Petra Goodwin

Aggiornato: Fri, Feb 2, 2018, 9:07 PM

In this article, I’m going to take a look at Echo Resources Limited’s (ASX:EAR) latest ownership structure, a non-fundamental factor which is important, but remains a less discussed subject among investors. The impact of a company’s ownership structure affects both its short- and long-term performance. 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 EAR’s shareholder registry. All data provided is as of the most recent financial year end.

See our latest analysis for Echo Resources

Institutional Ownership

Due to the big order sizes of institutional investors, a company’s shares can experience large, one-sided momentum, driven by high volume of shares removed from, or injected into, the market. With an institutional ownership of 9.57%, EAR doesn’t seem too exposed to higher volatility resulting from institutional trading. In addition, the fact that the company is covered by only 1 analyst indicates that it is yet to become popular amongst large sell-side institutions. Less covered stocks like EAR used to feature in legendary investor Peter Lynch’s portfolio, which would later be bought up by fast-following institutions as the stock gained more 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. EAR insiders hold a significant stake of 15.71% 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 EAR insiders have been doing with their shareholdings lately. Insider buying may be a sign of upbeat future expectations, however, selling doesn’t necessarily mean the opposite as insiders may be motivated by their personal financial needs.

General Public Ownership

The general public holds a substantial 41.51% stake in EAR, 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. 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 EAR should also look at another important group of investors: private companies, with a stake of 11.91%, 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 EAR’s business strategy. Thus, investors should dig deeper into EAR’s business relations with these companies and how it can affect shareholder returns in the long-term.

What this means for you:

Institutional ownership in EAR is not at a level that would concern investors. We are less likely to see sustained downtrends or significant volatility resulting from large institutional trading. However, if you are building an investment case for EAR, ownership structure alone should not dictate your decision to buy or sell the stock. Instead, you should be evaluating company-specific factors such as Echo Resources’s past track record and financial health. I urge you to complete your research by taking a look at the following:

1. Future Outlook: What are well-informed industry analysts predicting for EAR’s future growth? Take a look at our free research report of analyst consensus for EAR’s outlook.
2. Past Track Record: Has EAR been consistently performing well irrespective of the ups and downs in the market? Go into more detail in the past performance analysis and take a look at the free visual representations of EAR’s historicals for more clarity.
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.