Key Insights

• Given the large stake in the stock by institutions, Chinasoft International's stock price might be vulnerable to their trading decisions
• 53% of the business is held by the top 7 shareholders
• Insiders have been selling lately

To get a sense of who is truly in control of Chinasoft International Limited (HKG:354), it is important to understand the ownership structure of the business. With 46% stake, institutions possess the maximum shares in the company. Put another way, the group faces the maximum upside potential (or downside risk).

And as as result, institutional investors reaped the most rewards after the company's stock price gained 12% last week. One-year return to shareholders is currently 8.6% and last week's gain was the icing on the cake.

In the chart below, we zoom in on the different ownership groups of Chinasoft International.

What Does The Institutional Ownership Tell Us About Chinasoft International?

Institutions typically measure themselves against a benchmark when reporting to their own investors, so they often become more enthusiastic about a stock once it's included in a major index. We would expect most companies to have some institutions on the register, especially if they are growing.

We can see that Chinasoft International does have institutional investors; and they hold a good portion of the company's stock. This can indicate that the company has a certain degree of credibility in the investment community. However, it is best to be wary of relying on the supposed validation that comes with institutional investors. They too, get it wrong sometimes. 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 Chinasoft International's historic earnings and revenue below, but keep in mind there's always more to the story.

We note that hedge funds don't have a meaningful investment in Chinasoft International. Dan Capital Management Ltd. is currently the company's largest shareholder with 14% of shares outstanding. Meanwhile, the second and third largest shareholders, hold 10% and 9.2%, of the shares outstanding, respectively. Yuhong Chen, who is the third-largest shareholder, also happens to hold the title of Chairman of the Board.

We also observed that the top 7 shareholders account for more than half of the share register, with a few smaller shareholders to balance the interests of the larger ones to a certain extent.

Researching institutional ownership is a good way to gauge and filter a stock's expected performance. The same can be achieved by studying analyst sentiments. There are a reasonable number of analysts covering the stock, so it might be useful to find out their aggregate view on the future.

Insider Ownership Of Chinasoft International

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.

I generally consider insider ownership to be a good thing. However, on some occasions it makes it more difficult for other shareholders to hold the board accountable for decisions.

We can see that insiders own shares in Chinasoft International Limited. It is a pretty big company, so it is generally a positive to see some potentially meaningful alignment. In this case, they own around HK$1.6b worth of shares (at current prices). It is good to see this level of investment by insiders. You can check here to see if those insiders have been buying recently.

General Public Ownership

With a 30% ownership, the general public, mostly comprising of individual investors, have some degree of sway over Chinasoft International. 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.

Private Equity Ownership

Private equity firms hold a 14% stake in Chinasoft International. This suggests they can be influential in key policy decisions. Some investors might be encouraged by this, since private equity are sometimes able to encourage strategies that help the market see the value in the company. Alternatively, those holders might be exiting the investment after taking it public.

Next Steps:

I find it very interesting to look at who exactly owns a company. But to truly gain insight, we need to consider other information, too. Be aware that Chinasoft International is showing 1 warning sign in our investment analysis , you should know about...

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.