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Could First Merchants Corporation's (NASDAQ:FRME) Investor Composition Influence The Stock Price?

Simply Wall St

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A look at the shareholders of First Merchants Corporation (NASDAQ:FRME) can tell us which group is most powerful. Large companies usually have institutions as shareholders, and we usually see insiders owning shares in smaller companies. We also tend to see lower insider ownership in companies that were previously publicly owned.

With a market capitalization of US$1.8b, First Merchants is a decent size, so it is probably on the radar of institutional investors. In the chart below below, we can see that institutional investors have bought into the company. We can zoom in on the different ownership groups, to learn more about FRME.

Check out our latest analysis for First Merchants

NasdaqGS:FRME Ownership Summary, May 9th 2019

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.

We can see that First Merchants does have institutional investors; and they hold 74% of the 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. If multiple institutions change their view on a stock at the same time, you could see the share price drop fast. It's therefore worth looking at First Merchants's earnings history, below. Of course, the future is what really matters.

NasdaqGS:FRME Income Statement, May 9th 2019

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. There are a reasonable number of analysts covering the stock, so it might be useful to find out their aggregate view on the future.

Insider Ownership Of First Merchants

The definition of company insiders can be subjective, and does vary between jurisdictions. Our data reflects individual insiders, capturing board members at the very least. 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.

Most consider insider ownership a positive because it can indicate the board is well aligned with other shareholders. However, on some occasions too much power is concentrated within this group.

Shareholders would probably be interested to learn that insiders own shares in First Merchants Corporation. It is a pretty big company, so it is generally a positive to see some potentially meaningful alignment. In this case, they own around US$21m worth of shares (at current prices). 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

The general public, with a 25% stake in the company, will not easily be ignored. 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.

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.

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.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.