After a year of 8.4% returns, Reliance Worldwide Corporation Limited's (ASX:RWC) share price drop last week may have less of an impact on institutional investors
Key Insights
Given the large stake in the stock by institutions, Reliance Worldwide's stock price might be vulnerable to their trading decisions
The top 10 shareholders own 51% of the company
A look at the shareholders of Reliance Worldwide Corporation Limited (ASX:RWC) can tell us which group is most powerful. With 68% stake, institutions possess the maximum shares in the company. Put another way, the group faces the maximum upside potential (or downside risk).
Institutional investors endured the highest losses after the company's market cap fell by AU$102m last week. However, the 8.4% one-year return to shareholders may have helped lessen their pain. But they would probably be wary of future losses.
In the chart below, we zoom in on the different ownership groups of Reliance Worldwide.
See our latest analysis for Reliance Worldwide
What Does The Institutional Ownership Tell Us About Reliance Worldwide?
Many institutions measure their performance against an index that approximates the local market. So they usually pay more attention to companies that are included in major indices.
Reliance Worldwide 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 Reliance Worldwide's historic earnings and revenue below, but keep in mind there's always more to the story.
Since institutional investors own more than half the issued stock, the board will likely have to pay attention to their preferences. We note that hedge funds don't have a meaningful investment in Reliance Worldwide. The company's largest shareholder is Australian Super Pty Ltd, with ownership of 10.0%. Meanwhile, the second and third largest shareholders, hold 8.6% and 7.0%, of the shares outstanding, respectively.
On further inspection, we found that more than half the company's shares are owned by the top 10 shareholders, suggesting that the interests of the larger shareholders are balanced out to an extent by the smaller ones.
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. There are plenty of analysts covering the stock, so it might be worth seeing what they are forecasting, too.
Insider Ownership Of Reliance Worldwide
The definition of an insider can differ slightly between different countries, but members of the board of directors always count. 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.
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.
Our most recent data indicates that insiders own less than 1% of Reliance Worldwide Corporation Limited. Keep in mind that it's a big company, and the insiders own AU$7.4m worth of shares. The absolute value might be more important than the proportional share. It is good to see board members owning shares, but it might be worth checking if those insiders have been buying.
General Public Ownership
The general public, who are usually individual investors, hold a 28% stake in Reliance Worldwide. While this group can't necessarily call the shots, it can certainly have a real influence on how the company is run.
Next Steps:
I find it very interesting to look at who exactly owns a company. But to truly gain insight, we need to consider other information, too. To that end, you should be aware of the 1 warning sign we've spotted with Reliance Worldwide .
Ultimately the future is most important. You can access this free report on analyst forecasts for the company.
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.
