Key Insights

• Given the large stake in the stock by institutions, China Merchants Land's stock price might be vulnerable to their trading decisions
• 74% of the company is held by a single shareholder (Eureka Investment Co., Ltd.)
• Past performance of a company along with ownership data serve to give a strong idea about prospects for a business

To get a sense of who is truly in control of China Merchants Land Limited (HKG:978), it is important to understand the ownership structure of the business. The group holding the most number of shares in the company, around 75% to be precise, is institutions. That is, the group stands to benefit the most if the stock rises (or lose the most if there is a downturn).

Institutional investors would probably welcome last week's 44% increase in the share price after a year of 8.2% losses as a sign that returns may to begin trending higher.

In the chart below, we zoom in on the different ownership groups of China Merchants Land.

What Does The Institutional Ownership Tell Us About China Merchants Land?

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.

China Merchants Land already has institutions on the share registry. Indeed, they own a respectable stake in the company. 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. If multiple institutions change their view on a stock at the same time, you could see the share price drop fast. It's therefore worth looking at China Merchants Land's earnings history below. Of course, the future is what really matters.

Since institutional investors own more than half the issued stock, the board will likely have to pay attention to their preferences. Hedge funds don't have many shares in China Merchants Land. Eureka Investment Co., Ltd. is currently the company's largest shareholder with 74% of shares outstanding. With such a huge stake in the ownership, we infer that they have significant control of the future of the company. In comparison, the second and third largest shareholders hold about 0.9% and 0.7% of the stock. Shu Fai So, who is the third-largest shareholder, also happens to hold the title of Member of the Board of Directors.

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. We're not picking up on any analyst coverage of the stock at the moment, so the company is unlikely to be widely held.

Insider Ownership Of China Merchants Land

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.

Our information suggests that China Merchants Land Limited insiders own under 1% of the company. It appears that the board holds about HK$11m worth of stock. This compares to a market capitalization of HK$1.6b. Many investors in smaller companies prefer to see the board more heavily invested. You can click here to see if those insiders have been buying or selling.

General Public Ownership

The general public, who are usually individual investors, hold a 24% stake in China Merchants Land. 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:

It's always worth thinking about the different groups who own shares in a company. But to understand China Merchants Land better, we need to consider many other factors. Consider risks, for instance. Every company has them, and we've spotted 3 warning signs for China Merchants Land you should know about.

If you would prefer check out another company -- one with potentially superior financials -- then do not miss this free list of interesting companies, backed by strong financial data.

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.