Key Insights

• Institutions' substantial holdings in ESSA Pharma implies that they have significant influence over the company's share price
• The top 4 shareholders own 55% of the company
• Ownership research along with analyst forecasts data help provide a good understanding of opportunities in a stock

To get a sense of who is truly in control of ESSA Pharma Inc. (NASDAQ:EPIX), it is important to understand the ownership structure of the business. The group holding the most number of shares in the company, around 40% to be precise, is hedge funds. In other words, the group stands to gain the most (or lose the most) from their investment into the company.

Losing money on investments is something no shareholder enjoys, least of all hedge funds investors who saw their holdings value drop by 20% last week. However, the 42% one-year return to shareholders may have helped lessen their pain. They should, however, be mindful of further losses in the future.

In the chart below, we zoom in on the different ownership groups of ESSA Pharma.

What Does The Institutional Ownership Tell Us About ESSA Pharma?

Many institutions measure their performance against an index that approximates the local market. So they usually pay more attention to companies that are included in major indices.

As you can see, institutional investors have a fair amount of stake in ESSA Pharma. This implies the analysts working for those institutions have looked at the stock and they like it. But just like anyone else, they could be wrong. When multiple institutions own a stock, there's always a risk that they are in a 'crowded trade'. When such a trade goes wrong, multiple parties may compete to sell stock fast. This risk is higher in a company without a history of growth. You can see ESSA Pharma's historic earnings and revenue below, but keep in mind there's always more to the story.

Our data indicates that hedge funds own 40% of ESSA Pharma. That catches my attention because hedge funds sometimes try to influence management, or bring about changes that will create near term value for shareholders. BVF Partners L.P. is currently the company's largest shareholder with 20% of shares outstanding. With 18% and 9.4% of the shares outstanding respectively, Bellevue Asset Management AG and Morgan Stanley, Investment Banking and Brokerage Investments are the second and third largest shareholders.

To make our study more interesting, we found that the top 4 shareholders control more than half of the company which implies that this group has considerable sway over the company's decision-making.

While it makes sense to study institutional ownership data for a company, it also makes sense to study analyst sentiments to know which way the wind is blowing. There are plenty of analysts covering the stock, so it might be worth seeing what they are forecasting, too.

Insider Ownership Of ESSA Pharma

The definition of an insider can differ slightly between different countries, but members of the board of directors always count. Company management run the business, but the CEO will answer to the board, even if he or she is a member of it.

Insider ownership is positive when it signals leadership are thinking like the true owners of the company. However, high insider ownership can also give immense power to a small group within the company. This can be negative in some circumstances.

We can report that insiders do own shares in ESSA Pharma Inc.. In their own names, insiders own US$4.6m worth of stock in the US$205m company. It is good to see some investment by insiders, but it might be worth checking if those insiders have been buying.

General Public Ownership

With a 19% ownership, the general public, mostly comprising of individual investors, have some degree of sway over ESSA Pharma. This size of ownership, while considerable, may not be enough to change company policy if the decision is not in sync with other large shareholders.

Next Steps:

While it is well worth considering the different groups that own a company, there are other factors that are even more important. Case in point: We've spotted 3 warning signs for ESSA Pharma you should be aware of, and 2 of them are concerning.

If you would prefer discover what analysts are predicting in terms of future growth, do not miss this free report on analyst forecasts.

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.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com