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Every investor in Eargo, Inc. (NASDAQ:EAR) should be aware of the most powerful shareholder groups. Institutions often own shares in more established companies, while it's not unusual to see insiders own a fair bit of smaller companies. Companies that have been privatized tend to have low insider ownership.
Eargo isn't enormous, but it's not particularly small either. It has a market capitalization of US$2.1b, which means it would generally expect to see some institutions on the share registry. In the chart below, we can see that institutional investors have bought into the company. Let's take a closer look to see what the different types of shareholders can tell us about Eargo.
What Does The Institutional Ownership Tell Us About Eargo?
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 Eargo does have institutional investors; and they hold a good portion of the company's stock. 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 Eargo's historic earnings and revenue below, but keep in mind there's always more to the story.
Hedge funds don't have many shares in Eargo. Our data shows that New Enterprise Associates, Inc. is the largest shareholder with 17% of shares outstanding. The second and third largest shareholders are Gilde Healthcare Partners US Inc and Longitude Capital Management Co., LLC, with an equal amount of shares to their name at 10%.
Our research also brought to light the fact that roughly 55% of the company is controlled by the top 5 shareholders suggesting that these owners wield significant influence on the business.
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 Eargo
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 Eargo, Inc. insiders own under 1% of the company. We do note, however, it is possible insiders have an indirect interest through a private company or other corporate structure. 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 US$20m worth of shares (at current prices). It is good to see board members owning shares, but it might be worth checking if those insiders have been buying.
General Public Ownership
With a 28% ownership, the general public have some degree of sway over Eargo. While this group can't necessarily call the shots, it can certainly have a real influence on how the company is run.
Private Equity Ownership
With a stake of 38%, private equity firms could influence the Eargo board. Some might like this, because private equity are sometimes activists who hold management accountable. But other times, private equity is selling out, having taking the company public.
Private Company Ownership
We can see that Private Companies own 7.6%, of the shares on issue. Private companies may be related parties. Sometimes insiders have an interest in a public company through a holding in a private company, rather than in their own capacity as an individual. While it's hard to draw any broad stroke conclusions, it is worth noting as an area for further research.
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 2 warning signs with Eargo , and understanding them should be part of your investment process.
But ultimately it is the future, not the past, that will determine how well the owners of this business will do. Therefore we think it advisable to take a look at this free report showing whether analysts are predicting a brighter 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.
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.
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