Guangzhou Automobile Group Co., Ltd.’s (HKG:2238) stock price dropped 3.4% last week; private companies would not be happy

To get a sense of who is truly in control of Guangzhou Automobile Group Co., Ltd. (HKG:2238), 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 56% ownership. That is, the group stands to benefit the most if the stock rises (or lose the most if there is a downturn).

As a result, private companies as a group endured the highest losses last week after market cap fell by HK$2.5b.

Let’s delve deeper into each type of owner of Guangzhou Automobile Group, beginning with the chart below.

Before we look at the ownership breakdown, you might like to know that our analysis indicates that 2238 is potentially undervalued!

What Does The Institutional Ownership Tell Us About Guangzhou Automobile Group?

Institutional investors commonly compare their own returns to the returns of a commonly followed index. So they generally do consider buying larger companies that are included in the relevant benchmark index.

We can see that Guangzhou Automobile Group does have institutional investors; and they hold a good portion of the company’s stock. This suggests some credibility amongst professional investors. But we can’t rely on that fact alone since institutions make bad investments sometimes, just like everyone does. 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 Guangzhou Automobile Group’s historic earnings and revenue below, but keep in mind there’s always more to the story.

Guangzhou Automobile Group is not owned by hedge funds. Our data shows that Guangzhou Automobile Industry Group Co. Ltd. is the largest shareholder with 53% of shares outstanding. This implies that they have majority interest control of the future of the company. For context, the second largest shareholder holds about 3.8% of the shares outstanding, followed by an ownership of 2.4% by the third-largest shareholder.

While studying institutional ownership for a company can add value to your research, it is also a good practice to research analyst recommendations to get a deeper understand of a stock’s expected performance. Quite a few analysts cover the stock, so you could look into forecast growth quite easily.

Insider Ownership Of Guangzhou Automobile Group

The definition of company insiders can be subjective and does vary between jurisdictions. Our data reflects individual insiders, capturing board members at the very least. Management ultimately answers to the board. However, it is not uncommon for managers to be executive board members, especially if they are a founder or the CEO.

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.

Our most recent data indicates that insiders own less than 1% of Guangzhou Automobile Group Co., Ltd.. But they may have an indirect interest through a corporate structure that we haven’t picked up on. It is a very large company, so it would be surprising to see insiders own a large proportion of the company. Though their holding amounts to less than 1%, we can see that board members collectively own HK$405m worth of shares (at current prices). It is good to see board members owning shares, but it might be worth checking if those insiders have been buying.

General Public Ownership

With a 24% ownership, the general public, mostly comprising of individual investors, have some degree of sway over Guangzhou Automobile Group. 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 Company Ownership

It seems that Private Companies own 56%, of the Guangzhou Automobile Group stock. 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 Guangzhou Automobile Group better, we need to consider many other factors. Case in point: We’ve spotted 2 warning signs for Guangzhou Automobile Group you should be aware of, and 1 of them is 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.