Institutional owners may consider drastic measures as Ambarella, Inc.'s (NASDAQ:AMBA) recent US$156m drop adds to long-term losses
Key Insights
Given the large stake in the stock by institutions, Ambarella's stock price might be vulnerable to their trading decisions
The top 16 shareholders own 51% of the company
To get a sense of who is truly in control of Ambarella, Inc. (NASDAQ:AMBA), it is important to understand the ownership structure of the business. And the group that holds the biggest piece of the pie are institutions with 79% ownership. Put another way, the group faces the maximum upside potential (or downside risk).
As a result, institutional investors endured the highest losses last week after market cap fell by US$156m. This set of investors may especially be concerned about the current loss, which adds to a one-year loss of 32% for shareholders. Also referred to as "smart money", institutions have a lot of sway over how a stock's price moves. As a result, if the decline continues, institutional investors may be pressured to sell Ambarella which might hurt individual investors.
In the chart below, we zoom in on the different ownership groups of Ambarella.
See our latest analysis for Ambarella
What Does The Institutional Ownership Tell Us About Ambarella?
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.
Ambarella already has institutions on the share registry. Indeed, they own a respectable stake in the company. 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 Ambarella's earnings history below. Of course, the future is what really matters.
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 Ambarella. The company's largest shareholder is The Vanguard Group, Inc., with ownership of 10.0%. In comparison, the second and third largest shareholders hold about 8.3% and 4.2% of the stock. Additionally, the company's CEO Feng-Ming Wang directly holds 1.9% of the total shares outstanding.
A closer look at our ownership figures suggests that the top 16 shareholders have a combined ownership of 51% implying that no single shareholder has a majority.
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 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 Ambarella
The definition of an insider can differ slightly between different countries, but members of the board of directors always count. Company management run the business, but the CEO will answer to the board, even if he or she is a member of it.
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 most recent data indicates that insiders own some shares in Ambarella, 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$130m 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-- including retail investors -- own 16% stake in the company, and hence can't 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:
It's always worth thinking about the different groups who own shares in a company. But to understand Ambarella better, we need to consider many other factors. Case in point: We've spotted 3 warning signs for Ambarella you should be aware of.
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.
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.
