Institutional owners may consider drastic measures as Royalty Pharma plc's (NASDAQ:RPRX) recent US$453m drop adds to long-term losses
Key Insights
Institutions' substantial holdings in Royalty Pharma implies that they have significant influence over the company's share price
The top 8 shareholders own 51% of the company
To get a sense of who is truly in control of Royalty Pharma plc (NASDAQ:RPRX), it is important to understand the ownership structure of the business. With 68% stake, institutions possess the maximum shares in the company. That is, the group stands to benefit the most if the stock rises (or lose the most if there is a downturn).
As a result, institutional investors endured the highest losses last week after market cap fell by US$453m. This set of investors may especially be concerned about the current loss, which adds to a one-year loss of 17% for shareholders. Institutions or "liquidity providers" control large sums of money and therefore, these types of investors usually have a lot of influence over stock price movements. Hence, if weakness in Royalty Pharma'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 Royalty Pharma.
See our latest analysis for Royalty Pharma
What Does The Institutional Ownership Tell Us About Royalty Pharma?
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.
As you can see, institutional investors have a fair amount of stake in Royalty Pharma. 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. 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 Royalty Pharma's earnings history below. Of course, the future is what really matters.
Institutional investors own over 50% of the company, so together than can probably strongly influence board decisions. We note that hedge funds don't have a meaningful investment in Royalty Pharma. Mario Giuliani is currently the company's largest shareholder with 12% of shares outstanding. Meanwhile, the second and third largest shareholders, hold 8.9% and 8.8%, of the shares outstanding, respectively. Furthermore, CEO Pablo Legorreta is the owner of 0.8% of the company's shares.
We did some more digging and found that 8 of the top shareholders account for roughly 51% of the register, implying that along with larger shareholders, there are a few smaller shareholders, thereby balancing out each others interests somewhat.
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. There are plenty of analysts covering the stock, so it might be worth seeing what they are forecasting, too.
Insider Ownership Of Royalty Pharma
While the precise definition of an insider can be subjective, almost everyone considers board members to be insiders. 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 a reasonable proportion of Royalty Pharma plc. It is very interesting to see that insiders have a meaningful US$2.7b stake in this US$19b business. Most would say this shows a good degree of alignment with shareholders, especially in a company of this size. You can click here to see if those insiders have been buying or selling.
General Public Ownership
With a 18% ownership, the general public, mostly comprising of individual investors, have some degree of sway over Royalty Pharma. 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:
While it is well worth considering the different groups that own a company, there are other factors that are even more important. Case in point: We've spotted 5 warning signs for Royalty Pharma you should be aware of, and 1 of them doesn't sit too well with us.
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.
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