In the wake of Royalty Pharma plc's (NASDAQ:RPRX) latest US$631m market cap drop, institutional owners may be forced to take severe actions
To get a sense of who is truly in control of Royalty Pharma plc (NASDAQ:RPRX), it is important to understand the ownership structure of the business. We can see that institutions own the lion's share in the company with 68% ownership. Put another way, the group faces the maximum upside potential (or downside risk).
And so it follows that institutional investors was the group most impacted after the company's market cap fell to US$23b last week after a 3.6% drop in the share price. Needless to say, the recent loss which further adds to the one-year loss to shareholders of 8.6% might not go down well especially with this category of shareholders. Often called “market makers”, institutions wield significant power in influencing the price dynamics of any stock. Hence, if weakness in Royalty Pharma's share price continues, institutional investors may feel compelled to sell the stock, which might not be ideal for individual investors.
Let's take a closer look to see what the different types of shareholders can tell us about Royalty Pharma.
See our latest analysis for Royalty Pharma
What Does The Institutional Ownership Tell Us About Royalty Pharma?
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 Royalty Pharma. 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. 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 Royalty Pharma's 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. Hedge funds don't have many shares in Royalty Pharma. Our data shows that Mario Giuliani is the largest shareholder with 12% of shares outstanding. In comparison, the second and third largest shareholders hold about 10% and 9.7% of the stock. Furthermore, CEO Pablo Legorreta is the owner of 0.6% of the company's shares.
We did some more digging and found that 7 of the top shareholders account for roughly 51% 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. There are plenty of analysts covering the stock, so it might be worth seeing what they are forecasting, too.
Insider Ownership Of Royalty Pharma
The definition of an insider can differ slightly between different countries, but members of the board of directors always count. The company management answer to the board and the latter should represent the interests of shareholders. Notably, sometimes top-level managers are on the board themselves.
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.
It seems insiders own a significant proportion of Royalty Pharma plc. It has a market capitalization of just US$23b, and insiders have US$3.3b worth of shares in their own names. That's quite significant. Most would be pleased to see the board is investing alongside them. You may wish to access this free chart showing recent trading by insiders.
General Public Ownership
The general public, who are usually individual investors, hold a 17% stake in Royalty Pharma. 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.
Next Steps:
I find it very interesting to look at who exactly owns a company. But to truly gain insight, we need to consider other information, too. Take risks for example - Royalty Pharma has 4 warning signs we think 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.
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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.
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