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Who Really Owns Echo Resources Limited (ASX:EAR)?

In this analysis, my focus will be on developing a perspective on Echo Resources Limited’s (ASX:EAR) latest ownership structure, a less discussed, but important factor. Ownership structure of a company has been found to affect share performance over time. Differences in ownership structure of companies can have a profound effect on how management’s incentives are aligned with shareholder returns, which is why we’ll take a moment to analyse EAR’s shareholder registry.

Check out our latest analysis for Echo Resources

ASX:EAR Ownership_summary Jun 4th 18
ASX:EAR Ownership_summary Jun 4th 18

Institutional Ownership

In EAR’s case, institutional ownership stands at 11.44%, significant enough to cause considerable price moves in the case of large institutional transactions, especially when there is a low level of public shares available on the market to trade. These moves, at least in the short-term, are generally observed in an institutional ownership mix comprising of active stock pickers, in particular levered hedge funds, which can cause large price swings. For EAR shareholders, the potential of this type of share price volatility shouldn’t be as concerning as hedge fund ownership is is not significant,indicating few chances of such sudden price moves. While that hardly seems concerning, I will explore further into EAR’s ownership type to find out how it can affect the company’s investment profile.

Insider Ownership

Another important group of shareholders are company insiders. Insider ownership has to do more with how the company is managed and less to do with the direct impact of the magnitude of shares trading on the market. EAR insiders hold a significant stake of 15.71% in the company. This level of insider ownership has been found to have a negative impact on companies with consistently low PE ratios (underperformers), while it has been positive in the case of high PE ratio firms (outperformers). It’s also interesting to learn what EAR insiders have been doing with their shareholdings lately. While insider buying is possibly a sign of a positive outlook for the company, selling doesn’t necessarily indicate a negative outlook as they may be selling to meet personal financial needs.

ASX:EAR Insider_trading Jun 4th 18
ASX:EAR Insider_trading Jun 4th 18

General Public Ownership

A substantial ownership of 39.64% in EAR is held by the general public. With this size of ownership, retail investors can collectively play a role in major company policies that affect shareholders returns, including executive remuneration and the appointment of directors. They can also exercise the power to decline an acquisition or merger that may not improve profitability.

Private Company Ownership

Another important group of owners for potential investors in EAR are private companies that hold a stake of 11.91% in EAR. These are companies that are mainly invested due to their strategic interests or are incentivized by reaping capital gains on investments their shareholdings. An ownership of this size indicates a strong financial backing and has the potential to influence EAR’s business strategy. Thus, investors should dig deeper into EAR’s business relations with these companies and how it can affect shareholder returns in the long-term.

Next Steps:

EAR’s considerably high level of institutional ownership calls for further analysis into its margin of safety. This will allow investors to reduce the impact of non-fundamental factors, such as volatile block trading impact on their portfolio value. However, ownership structure should not be the only determining factor when you’re building an investment thesis for EAR. Instead, you should be evaluating company-specific factors such as Echo Resources’s past track record and financial health. I highly recommend you to complete your research by taking a look at the following:

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  1. Future Outlook: What are well-informed industry analysts predicting for EAR’s future growth? Take a look at our free research report of analyst consensus for EAR’s outlook.

  2. Past Track Record: Has EAR been consistently performing well irrespective of the ups and downs in the market? Go into more detail in the past performance analysis and take a look at the free visual representations of EAR’s historicals for more clarity.

  3. Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.

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.
To help readers see pass the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price sensitive company announcements.

The author is an independent contributor and at the time of publication had no position in the stocks mentioned.