- Oops!Something went wrong.Please try again later.
The big shareholder groups in Rhythm Pharmaceuticals, Inc. (NASDAQ:RYTM) have power over the company. Generally speaking, as a company grows, institutions will increase their ownership. Conversely, insiders often decrease their ownership over time. We also tend to see lower insider ownership in companies that were previously publicly owned.
Rhythm Pharmaceuticals isn't enormous, but it's not particularly small either. It has a market capitalization of US$1.6b, which means it would generally expect to see some institutions on the share registry. Taking a look at our data on the ownership groups (below), it seems that institutions own shares in the company. We can zoom in on the different ownership groups, to learn more about Rhythm Pharmaceuticals.
What Does The Institutional Ownership Tell Us About Rhythm Pharmaceuticals?
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.
Rhythm Pharmaceuticals already has institutions on the share registry. Indeed, they own a respectable stake in the company. 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. 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 Rhythm Pharmaceuticals' historic earnings and revenue below, but keep in mind there's always more to the story.
Since institutional investors own more than half the issued stock, the board will likely have to pay attention to their preferences. It looks like hedge funds own 5.0% of Rhythm Pharmaceuticals shares. 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. Our data shows that New Enterprise Associates, Inc. is the largest shareholder with 10.0% of shares outstanding. For context, the second largest shareholder holds about 10.0% of the shares outstanding, followed by an ownership of 8.9% by the third-largest shareholder.
We did some more digging and found that 7 of the top shareholders account for roughly 53% 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. Quite a few analysts cover the stock, so you could look into forecast growth quite easily.
Insider Ownership Of Rhythm Pharmaceuticals
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.
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 some shares in Rhythm Pharmaceuticals, Inc.. This is a big company, so it is good to see this level of alignment. Insiders own US$50m 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 holds a 15% stake in Rhythm Pharmaceuticals. 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.
Private Equity Ownership
Private equity firms hold a 20% stake in Rhythm Pharmaceuticals. 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.
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 3 warning signs with Rhythm Pharmaceuticals , and understanding them should be part of your investment process.
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.
This article by Simply Wall St is general in nature. 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.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.