Red Violet, Inc.'s (NASDAQ:RDVT) institutional investors lost 10% over the past week but have profited from longer-term gains

Key Insights

• Significantly high institutional ownership implies Red Violet's stock price is sensitive to their trading actions
• A total of 7 investors have a majority stake in the company with 52% ownership
• Insiders own 17% of Red Violet

A look at the shareholders of Red Violet, Inc. (NASDAQ:RDVT) can tell us which group is most powerful. And the group that holds the biggest piece of the pie are institutions with 37% ownership. Put another way, the group faces the maximum upside potential (or downside risk).

No shareholder likes losing money on their investments, especially institutional investors who saw their holdings drop 10% in value last week. However, the 11% one-year return to shareholders might have softened the blow. They should, however, be mindful of further losses in the future.

Let's delve deeper into each type of owner of Red Violet, beginning with the chart below.

See our latest analysis for Red Violet

What Does The Institutional Ownership Tell Us About Red Violet?

Institutional investors commonly compare their own returns to the returns of a commonly followed index. So they generally do consider buying larger companies that are included in the relevant benchmark index.

We can see that Red Violet 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. 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 Red Violet's historic earnings and revenue below, but keep in mind there's always more to the story.

Our data indicates that hedge funds own 24% of Red Violet. That catches my attention because hedge funds sometimes try to influence management, or bring about changes that will create near term value for shareholders. Trigran Investments, Inc. is currently the company's largest shareholder with 15% of shares outstanding. Nantahala Capital Management, LLC is the second largest shareholder owning 8.8% of common stock, and Ashford Capital Management Inc holds about 8.0% of the company stock. In addition, we found that Derek Dubner, the CEO has 3.7% of the shares allocated to their name.

We did some more digging and found that 7 of the top shareholders account for roughly 52% 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. While there is some analyst coverage, the company is probably not widely covered. So it could gain more attention, down the track.

Insider Ownership Of Red Violet

While the precise definition of an insider can be subjective, almost everyone considers board members to be insiders. 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.

Most consider insider ownership a positive because it can indicate the board is well aligned with other shareholders. However, on some occasions too much power is concentrated within this group.

Our most recent data indicates that insiders own a reasonable proportion of Red Violet, Inc.. Insiders have a US$44m stake in this US$257m business. We would say this shows alignment with shareholders, but it is worth noting that the company is still quite small; some insiders may have founded the business. You can click here to see if those insiders have been buying or selling.

General Public Ownership

The general public, who are usually individual investors, hold a 22% stake in Red Violet. 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:

While it is well worth considering the different groups that own a company, there are other factors that are even more important. Be aware that Red Violet is showing 1 warning sign in our investment analysis , you should know about...

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.

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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.