Should You Be Concerned About DASAN Zhone Solutions Inc’s (NASDAQ:DZSI) Shareholders?

Austin Wood

Updated Sun, Apr 1, 2018, 6:39 PM

I am going to take a deep dive into DASAN Zhone Solutions Inc’s (NASDAQ:DZSI) most recent ownership structure, not a frequent subject of discussion among individual investors. A company’s ownership structure is often linked to its share performance in both the long- and short-term. Since the effect of an active institutional investor with a similar ownership as a passive pension-fund can be vastly different on a company’s corporate governance and accountability of shareholders, investors should take a closer look at DZSI’s shareholder registry.

View our latest analysis for DASAN Zhone Solutions

NasdaqCM:DZSI Ownership_summary Apr 2nd 18

Institutional Ownership

Due to the big order sizes of institutional investors, a company’s shares can experience large, one-sided momentum, driven by high volume of shares removed from, or injected into, the market. A low institutional ownership of 3.63% puts DZSI on a list of companies that are not likely exposed to spikes in volatility resulting from institutional trading. Apart from low institutional ownership, another indicator of DZSI’s low popularity is the fact that the company is only covered by 1 analyst.

Insider Ownership

Insiders form another group of important ownership types as they manage the company’s operations and decide the best use of capital. Insider ownership has been linked to better alignment between management and shareholders. With a minor stake in DZSI, insiders seem to have some alignment of interest with shareholders. A higher level of insider ownership has been found to reflect the choosing of projects with higher return on investments compared to lower returning projects for the sake of expansion. It would also be interesting to check what insiders have been doing with their shareholding recently. Insider buying can be a positive indicator of future performance, but a selling decision can be simply driven by personal financial requirements.

General Public Ownership

The general public holds a substantial 31.78% stake in DZSI, making it a highly popular stock among retail investors. This size of ownership gives retail investors collective power in deciding on major policy decisions such as executive compensation, appointment of directors and acquisitions of businesses. This level of ownership gives retail investors the power to sway key policy decisions such as board composition, executive compensation, and potential acquisitions. This is a positive sign for an investor who wants to be involved in key decision-making of the company.

Private Equity Ownership

Private equity firms hold a 5.84% stake in DZSI. With a stake of this size, they can be influential in key policy decisions. An investor should be encouraged by the ownership of these institutions who are known to be experts in increasing efficiency, improving capital structure and opting for value-accretive policy decisions.

Public Company Ownership

Potential investors in DZSI should also look at another important group of investors: other public companies, with a stake of 57.93%, who are primarily invested because of strategic and capital gain interests. With this size of ownership in DZSI, this ownership class can affect the company’s business strategy. As a result, potential investors should further explore the company’s business relations with these companies and find out if they can affect shareholder returns in the long-term.

Next Steps:

With a low level of institutional ownership, investors in DZSI need not worry about non-fundamental factors such as ownership structure causing large impact on stock prices. However, ownership structure should not be the only determining factor when you’re building an investment thesis for DZSI. Rather, you should be examining fundamental factors such as DASAN Zhone Solutions’s past track record and financial health. I urge you to complete your research by taking a look at the following:

1. Financial Health: Is DZSI’s operations financially sustainable? Balance sheets can be hard to analyze, which is why we’ve done it for you. Check out our financial health checks here.
2. 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.