Erasca, Inc.'s (NASDAQ:ERAS) recent 16% pullback adds to one-year year losses, institutional owners may take drastic measures
If you want to know who really controls Erasca, Inc. (NASDAQ:ERAS), then you'll have to look at the makeup of its share registry. The group holding the most number of shares in the company, around 44% to be precise, is institutions. Put another way, the group faces the maximum upside potential (or downside risk).
And so it follows that institutional investors was the group most impacted after the company's market cap fell to US$716m last week after a 16% drop in the share price. Needless to say, the recent loss which further adds to the one-year loss to shareholders of 68% might not go down well especially with this category of shareholders. Often called “market makers”, institutions wield significant power in influencing the price dynamics of any stock. Hence, if weakness in Erasca's share price continues, institutional investors may feel compelled to sell the stock, which might not be ideal for individual investors.
In the chart below, we zoom in on the different ownership groups of Erasca.
Check out our latest analysis for Erasca
What Does The Institutional Ownership Tell Us About Erasca?
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.
As you can see, institutional investors have a fair amount of stake in Erasca. 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 Erasca, (below). Of course, keep in mind that there are other factors to consider, too.
Our data indicates that hedge funds own 7.0% of Erasca. That's interesting, because hedge funds can be quite active and activist. Many look for medium term catalysts that will drive the share price higher. With a 21% stake, CEO Jonathan Lim is the largest shareholder. FMR LLC is the second largest shareholder owning 12% of common stock, and Arch Venture Partners, L.P. holds about 7.4% of the company stock.
To make our study more interesting, we found that the top 5 shareholders control more than half of the company which implies that this group has considerable sway over the company's decision-making.
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. There are plenty of analysts covering the stock, so it might be worth seeing what they are forecasting, too.
Insider Ownership Of Erasca
The definition of an insider can differ slightly between different countries, but members of the board of directors always count. 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.
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 Erasca, Inc.. Insiders own US$162m worth of shares in the US$716m company. This may suggest that the founders still own a lot of shares. You can click here to see if they have been buying or selling.
General Public Ownership
The general public-- including retail investors -- own 19% stake in the company, and hence can't easily be ignored. 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.
Private Equity Ownership
Private equity firms hold a 7.4% stake in Erasca. This suggests they can be influential in key policy decisions. 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. Consider for instance, the ever-present spectre of investment risk. We've identified 5 warning signs with Erasca (at least 2 which don't sit too well with us) , and understanding them should be part of your investment process.
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.
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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