In this article, I will take a quick look at Cervantes Corporation Limited’s (ASX:CVS) 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 CVS’s shareholder registry.

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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. CVS insiders hold a significant stake of 34.71% 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 may be interesting to take a look at what company insiders have been doing with their holdings 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

A big stake of 41.80% in CVS 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

Another group of owners that a potential investor in CVS should consider are private companies, with a stake of 17.37%. While they invest more often due to strategic interests, an investment can also be driven by capital gains through share price appreciation. This kind of ownership, if predominantly strategic, can give these companies a significant power to affect CVS’s business strategy. Thus, potential investors should look into these business relations and check how it can impact long-term shareholder returns.

Next Steps:

A relatively significant holding of company insiders could mean high alignment with shareholders. But at the same time, investors should be aware of the level of influence executives could have on governance decisions. However, ownership structure should not be the only focus of your research when constructing an investment thesis around CVS. Rather, you should be examining fundamental factors such as Cervantes’s past track record and financial health. I highly recommend you to complete your research by taking a look at the following: