Institutional owners may take dramatic actions as Sims Limited's (ASX:SGM) recent 5.5% drop adds to one-year losses
Key Insights
Given the large stake in the stock by institutions, Sims' stock price might be vulnerable to their trading decisions
The top 6 shareholders own 51% of the company
A look at the shareholders of Sims Limited (ASX:SGM) can tell us which group is most powerful. With 48% 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).
And so it follows that institutional investors was the group most impacted after the company's market cap fell to AU$2.4b last week after a 5.5% drop in the share price. This set of investors may especially be concerned about the current loss, which adds to a one-year loss of 21% for shareholders. Also referred to as "smart money", institutions have a lot of sway over how a stock's price moves. Hence, if weakness in Sims' 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 Sims.
Check out our latest analysis for Sims
What Does The Institutional Ownership Tell Us About Sims?
Institutions typically measure themselves against a benchmark when reporting to their own investors, so they often become more enthusiastic about a stock once it's included in a major index. We would expect most companies to have some institutions on the register, especially if they are growing.
As you can see, institutional investors have a fair amount of stake in Sims. 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. 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 Sims, (below). Of course, keep in mind that there are other factors to consider, too.
Hedge funds don't have many shares in Sims. Mitsui & Co., Ltd. is currently the company's largest shareholder with 17% of shares outstanding. Orbis Investment Management Limited is the second largest shareholder owning 17% of common stock, and Yarra Funds Management Limited holds about 5.1% of the company stock.
We also observed that the top 6 shareholders account for more than half of the share register, with a few smaller shareholders to balance the interests of the larger ones to a certain extent.
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. Quite a few analysts cover the stock, so you could look into forecast growth quite easily.
Insider Ownership Of Sims
While the precise definition of an insider can be subjective, almost everyone considers board members to be insiders. 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 information suggests that Sims Limited insiders own under 1% of the company. It is a pretty big company, so it would be possible for board members to own a meaningful interest in the company, without owning much of a proportional interest. In this case, they own around AU$19m worth of shares (at current prices). It is always good to see at least some insider ownership, but it might be worth checking if those insiders have been selling.
General Public Ownership
With a 34% ownership, the general public, mostly comprising of individual investors, have some degree of sway over Sims. 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.
Public Company Ownership
It appears to us that public companies own 17% of Sims. It's hard to say for sure but this suggests they have entwined business interests. This might be a strategic stake, so it's worth watching this space for changes in ownership.
Next Steps:
While it is well worth considering the different groups that own a company, there are other factors that are even more important. Take risks for example - Sims has 2 warning signs we think you should be aware of.
If you would prefer discover what analysts are predicting in terms of future growth, do not miss this free report on analyst forecasts.
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.
