Are Institutions Heavily Invested In Cara Therapeutics, Inc.’s (NASDAQ:CARA) Shares?

Every investor in Cara Therapeutics, Inc. (NASDAQ:CARA) should be aware of the most powerful shareholder groups. Generally speaking, as a company grows, institutions will increase their ownership. Conversely, insiders often decrease their ownership over time. Companies that have been privatized tend to have low insider ownership.

Cara Therapeutics is not a large company by global standards. It has a market capitalization of US$721m, which means it wouldn’t have the attention of many institutional investors. In the chart below, we can see that institutions are noticeable on the share registry. We can zoom in on the different ownership groups, to learn more about Cara Therapeutics.

View our latest analysis for Cara Therapeutics

ownership-breakdown
NasdaqGM:CARA Ownership Breakdown August 29th 2020

What Does The Institutional Ownership Tell Us About Cara Therapeutics?

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 Cara Therapeutics. 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. 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 Cara Therapeutics’ historic earnings and revenue below, but keep in mind there’s always more to the story.

earnings-and-revenue-growth
NasdaqGM:CARA Earnings and Revenue Growth August 29th 2020

Institutional investors own over 50% of the company, so together than can probably strongly influence board decisions. We note that hedge funds don’t have a meaningful investment in Cara Therapeutics. Looking at our data, we can see that the largest shareholder is BlackRock, Inc. with 8.0% of shares outstanding. With 7.9% and 6.0% of the shares outstanding respectively, T. Rowe Price Group, Inc. and Rho Capital Partners, Inc. are the second and third largest shareholders. Furthermore, CEO Derek Chalmers is the owner of 1.9% of the company’s shares.

After doing some more digging, we found that the top 12 have the combined ownership of 51% in the company, suggesting that no single shareholder has significant control over the company.

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. There are plenty of analysts covering the stock, so it might be worth seeing what they are forecasting, too.

Insider Ownership Of Cara Therapeutics

The definition of company insiders can be subjective and does vary between jurisdictions. Our data reflects individual insiders, capturing board members at the very least. 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.

We can see that insiders own shares in Cara Therapeutics, Inc.. As individuals, the insiders collectively own US$17m worth of the US$721m 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

The general public holds a 28% stake in Cara Therapeutics. 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 Equity Ownership

With an ownership of 6.0%, private equity firms are in a position to play a role in shaping corporate strategy with a focus on value creation. 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.

Next Steps:

It’s always worth thinking about the different groups who own shares in a company. But to understand Cara Therapeutics better, we need to consider many other factors. For example, we’ve discovered 2 warning signs for Cara Therapeutics (1 is a bit concerning!) that you should be aware of before investing here.

Ultimately the future is most important. You can access this free report on analyst forecasts for the company.

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. 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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