Key Insights

• Shanghai Chemspec's significant private companies ownership suggests that the key decisions are influenced by shareholders from the larger public
• The top 3 shareholders own 55% of the company
• Institutions own 14% of Shanghai Chemspec

To get a sense of who is truly in control of Shanghai Chemspec Corporation (SHSE:688602), it is important to understand the ownership structure of the business. We can see that private companies own the lion's share in the company with 48% ownership. Put another way, the group faces the maximum upside potential (or downside risk).

As a result, private companies collectively scored the highest last week as the company hit CN¥4.5b market cap following a 9.7% gain in the stock.

In the chart below, we zoom in on the different ownership groups of Shanghai Chemspec.

What Does The Institutional Ownership Tell Us About Shanghai Chemspec?

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 Shanghai Chemspec. 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 Shanghai Chemspec'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 Shanghai Chemspec. Looking at our data, we can see that the largest shareholder is Ningbo Meishan Bonded Port Area Ouchang Investment Management Co., Ltd. with 35% of shares outstanding. In comparison, the second and third largest shareholders hold about 11% and 8.8% of the stock.

A more detailed study of the shareholder registry showed us that 3 of the top shareholders have a considerable amount of ownership in the company, via their 55% stake.

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. As far as we can tell there isn't analyst coverage of the company, so it is probably flying under the radar.

Insider Ownership Of Shanghai Chemspec

While the precise definition of an insider can be subjective, almost everyone considers board members to be insiders. 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.

Our data cannot confirm that board members are holding shares personally. Not all jurisdictions have the same rules around disclosing insider ownership, and it is possible we have missed something, here. So you can click here learn more about the CEO.

General Public Ownership

With a 28% ownership, the general public, mostly comprising of individual investors, have some degree of sway over Shanghai Chemspec. 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 8.8% stake in Shanghai Chemspec. This suggests they can be influential in key policy decisions. Some might like this, because private equity are sometimes activists who hold management accountable. But other times, private equity is selling out, having taking the company public.

Private Company Ownership

Our data indicates that Private Companies hold 48%, of the company's shares. It might be worth looking deeper into this. If related parties, such as insiders, have an interest in one of these private companies, that should be disclosed in the annual report. Private companies may also have a strategic interest in the company.

Next Steps:

It's always worth thinking about the different groups who own shares in a company. But to understand Shanghai Chemspec better, we need to consider many other factors. Consider risks, for instance. Every company has them, and we've spotted 2 warning signs for Shanghai Chemspec you should know about.

Of course this may not be the best stock to buy. So take a peek at this free free list of interesting companies.

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.