TerraCom Limited (ASX:TER) has caught the attention of institutional investors who hold a sizeable 42% stake
Key Insights
Given the large stake in the stock by institutions, TerraCom's stock price might be vulnerable to their trading decisions
50% of the business is held by the top 8 shareholders
Past performance of a company along with ownership data serve to give a strong idea about prospects for a business
Every investor in TerraCom Limited (ASX:TER) should be aware of the most powerful shareholder groups. And the group that holds the biggest piece of the pie are institutions with 42% ownership. Put another way, the group faces the maximum upside potential (or downside risk).
Given the vast amount of money and research capacities at their disposal, institutional ownership tends to carry a lot of weight, especially with individual investors. As a result, a sizeable amount of institutional money invested in a firm is generally viewed as a positive attribute.
Let's take a closer look to see what the different types of shareholders can tell us about TerraCom.
Check out our latest analysis for TerraCom
What Does The Institutional Ownership Tell Us About TerraCom?
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.
We can see that TerraCom does have institutional investors; and they hold a good portion of the company's stock. 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 TerraCom's earnings history below. Of course, the future is what really matters.
It would appear that 14% of TerraCom shares are controlled by hedge funds. That worth noting, since hedge funds are often quite active investors, who may try to influence management. Many want to see value creation (and a higher share price) in the short term or medium term. The company's largest shareholder is Regal Partners Limited, with ownership of 14%. With 9.8% and 6.2% of the shares outstanding respectively, Bonython Coal No 1 Pty Limited, Asset Management Arm and TIGA Trading Pty Ltd, Asset Management Arm are the second and third largest shareholders.
We did some more digging and found that 8 of the top shareholders account for roughly 50% of the register, implying that along with larger shareholders, there are a few smaller shareholders, thereby balancing out each others interests somewhat.
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. Our information suggests that there isn't any analyst coverage of the stock, so it is probably little known.
Insider Ownership Of TerraCom
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.
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 TerraCom Limited. As individuals, the insiders collectively own AU$20m worth of the AU$368m company. It is good to see some investment by insiders, but it might be worth checking if those insiders have been buying.
General Public Ownership
With a 32% ownership, the general public, mostly comprising of individual investors, have some degree of sway over TerraCom. 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.
Private Company Ownership
We can see that Private Companies own 7.4%, of the shares on issue. It's hard to draw any conclusions from this fact alone, so its worth looking into who owns those private companies. Sometimes insiders or other related parties have an interest in shares in a public company through a separate private company.
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 2 warning signs for TerraCom you should be aware of, and 1 of them is a bit concerning.
Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of interesting companies.
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.
