Institutional investors may overlook Ardelyx, Inc.'s (NASDAQ:ARDX) recent US$195m market cap drop as long-term gains remain positive
Key Insights
Given the large stake in the stock by institutions, Ardelyx's stock price might be vulnerable to their trading decisions
50% of the business is held by the top 22 shareholders
To get a sense of who is truly in control of Ardelyx, Inc. (NASDAQ:ARDX), it is important to understand the ownership structure of the business. The group holding the most number of shares in the company, around 60% to be precise, is institutions. That is, the group stands to benefit the most if the stock rises (or lose the most if there is a downturn).
No shareholder likes losing money on their investments, especially institutional investors who saw their holdings drop 9.7% in value last week. However, the 99% one-year return to shareholders might have softened the blow. We would assume however, that they would be on the lookout for weakness in the future.
Let's take a closer look to see what the different types of shareholders can tell us about Ardelyx.
Check out our latest analysis for Ardelyx
What Does The Institutional Ownership Tell Us About Ardelyx?
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.
Ardelyx already has institutions on the share registry. Indeed, they own a respectable stake in the company. This suggests some credibility amongst professional investors. But we can't rely on that fact alone since institutions make bad investments sometimes, just like everyone does. 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 Ardelyx's 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. We note that hedge funds don't have a meaningful investment in Ardelyx. Looking at our data, we can see that the largest shareholder is Janus Henderson Group plc with 11% of shares outstanding. For context, the second largest shareholder holds about 7.4% of the shares outstanding, followed by an ownership of 7.2% by the third-largest shareholder. Furthermore, CEO Michael Raab is the owner of 0.6% of the company's shares.
Looking at the shareholder registry, we can see that 50% of the ownership is controlled by the top 22 shareholders, meaning that no single shareholder has a majority interest in the ownership.
Researching institutional ownership is a good way to gauge and filter a stock's expected performance. The same can be achieved by studying analyst sentiments. Quite a few analysts cover the stock, so you could look into forecast growth quite easily.
Insider Ownership Of Ardelyx
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. 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.
We can see that insiders own shares in Ardelyx, Inc.. 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$49m worth of shares (at current prices). Most would say this shows alignment of interests between shareholders and the board. Still, it might be worth checking if those insiders have been selling.
General Public Ownership
The general public, who are usually individual investors, hold a 38% stake in Ardelyx. 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:
It's always worth thinking about the different groups who own shares in a company. But to understand Ardelyx better, we need to consider many other factors. Be aware that Ardelyx is showing 3 warning signs in our investment analysis , you should know about...
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.
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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.
