With 73% institutional ownership, First Merchants Corporation (NASDAQ:FRME) is a favorite amongst the big guns
Key Insights
Institutions' substantial holdings in First Merchants implies that they have significant influence over the company's share price
The top 18 shareholders own 51% of the company
Ownership research along with analyst forecasts data help provide a good understanding of opportunities in a stock
A look at the shareholders of First Merchants Corporation (NASDAQ:FRME) can tell us which group is most powerful. The group holding the most number of shares in the company, around 73% to be precise, is institutions. Put another way, the group faces the maximum upside potential (or downside risk).
Because institutional owners have a huge pool of resources and liquidity, their investing decisions tend to carry a great deal of weight, especially with individual investors. Therefore, a good portion of institutional money invested in the company is usually a huge vote of confidence on its future.
Let's take a closer look to see what the different types of shareholders can tell us about First Merchants.
Check out our latest analysis for First Merchants
What Does The Institutional Ownership Tell Us About First Merchants?
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.
First Merchants already has institutions on the share registry. Indeed, they own a respectable stake in the company. This implies the analysts working for those institutions have looked at the stock and they like it. But just like anyone else, they could be wrong. 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 First Merchants' historic earnings and revenue below, but keep in mind there's always more to the story.
Investors should note that institutions actually own more than half the company, so they can collectively wield significant power. First Merchants is not owned by hedge funds. The Vanguard Group, Inc. is currently the company's largest shareholder with 11% of shares outstanding. For context, the second largest shareholder holds about 7.1% of the shares outstanding, followed by an ownership of 5.2% by the third-largest shareholder.
After doing some more digging, we found that the top 18 have the combined ownership of 51% in the company, suggesting that no single shareholder has significant control over the company.
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. Quite a few analysts cover the stock, so you could look into forecast growth quite easily.
Insider Ownership Of First Merchants
While the precise definition of an insider can be subjective, almost everyone considers board members to be insiders. 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.
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.
Shareholders would probably be interested to learn that insiders own shares in First Merchants Corporation. The insiders have a meaningful stake worth US$24m. Most would see this as a real positive. If you would like to explore the question of insider alignment, you can click here to see if insiders have been buying or selling.
General Public Ownership
With a 25% ownership, the general public, mostly comprising of individual investors, have some degree of sway over First Merchants. 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 First Merchants better, we need to consider many other factors. Take risks for example - First Merchants has 1 warning sign we think you should be aware of.
But ultimately it is the future, not the past, that will determine how well the owners of this business will do. Therefore we think it advisable to take a look at this free report showing whether analysts are predicting a brighter 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.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.
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