Private equity firms are MicroTech Medical (Hangzhou) Co., Ltd.'s (HKG:2235) biggest owners and were rewarded after market cap rose by HK$313m last week

Key Insights

• Significant control over MicroTech Medical (Hangzhou) by private equity firms implies that the general public has more power to influence management and governance-related decisions
• 50% of the business is held by the top 5 shareholders
• Insiders own 23% of MicroTech Medical (Hangzhou)

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To get a sense of who is truly in control of MicroTech Medical (Hangzhou) Co., Ltd. (HKG:2235), it is important to understand the ownership structure of the business. The group holding the most number of shares in the company, around 29% to be precise, is private equity firms. Put another way, the group faces the maximum upside potential (or downside risk).

As a result, private equity firms collectively scored the highest last week as the company hit HK$3.0b market cap following a 12% gain in the stock.

Let's delve deeper into each type of owner of MicroTech Medical (Hangzhou), beginning with the chart below.

See our latest analysis for MicroTech Medical (Hangzhou)

What Does The Institutional Ownership Tell Us About MicroTech Medical (Hangzhou)?

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 MicroTech Medical (Hangzhou) 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. It is not uncommon to see a big share price drop if two large institutional investors try to sell out of a stock at the same time. So it is worth checking the past earnings trajectory of MicroTech Medical (Hangzhou), (below). Of course, keep in mind that there are other factors to consider, too.

We note that hedge funds don't have a meaningful investment in MicroTech Medical (Hangzhou). The company's CEO Pan Zheng is the largest shareholder with 21% of shares outstanding. Qiming Weichuang Venture Capital Management (Shanghai) Company Limited is the second largest shareholder owning 10% of common stock, and Eli Lilly Investment Consulting (Shanghai) Co., Ltd. holds about 6.9% of the company stock.

Our research also brought to light the fact that roughly 50% of the company is controlled by the top 5 shareholders suggesting that these owners wield significant influence on the business.

While it makes sense to study institutional ownership data for a company, it also makes sense to study analyst sentiments to know which way the wind is blowing. While there is some analyst coverage, the company is probably not widely covered. So it could gain more attention, down the track.

Insider Ownership Of MicroTech Medical (Hangzhou)

While the precise definition of an insider can be subjective, almost everyone considers board members to be insiders. The company management answer to the board and the latter should represent the interests of shareholders. Notably, sometimes top-level managers are on the board themselves.

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 information suggests that insiders maintain a significant holding in MicroTech Medical (Hangzhou) Co., Ltd.. Insiders have a HK$680m stake in this HK$3.0b business. It is great to see insiders so invested in the business. It might be worth checking if those insiders have been buying recently.

General Public Ownership

The general public, who are usually individual investors, hold a 28% stake in MicroTech Medical (Hangzhou). While this size of ownership may not be enough to sway a policy decision in their favour, they can still make a collective impact on company policies.

Private Equity Ownership

With an ownership of 29%, private equity firms are in a position to play a role in shaping corporate strategy with a focus on value creation. Sometimes we see private equity stick around for the long term, but generally speaking they have a shorter investment horizon and -- as the name suggests -- don't invest in public companies much. After some time they may look to sell and redeploy capital elsewhere.

Next Steps:

While it is well worth considering the different groups that own a company, there are other factors that are even more important.

Many find it useful to take an in depth look at how a company has performed in the past. You can access this detailed graph of past earnings, revenue and cash flow.

If you are like me, you may want to think about whether this company will grow or shrink. Luckily, you can check this free report showing analyst forecasts for its future.

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.