Institutional investors are Downer EDI Limited's (ASX:DOW) biggest bettors and were rewarded after last week's AU$147m market cap gain

Key Insights

• Given the large stake in the stock by institutions, Downer EDI's stock price might be vulnerable to their trading decisions
• 52% of the business is held by the top 7 shareholders
• Analyst forecasts along with ownership data serve to give a strong idea about prospects for a business

A look at the shareholders of Downer EDI Limited (ASX:DOW) can tell us which group is most powerful. The group holding the most number of shares in the company, around 86% to be precise, is institutions. That is, the group stands to benefit the most if the stock rises (or lose the most if there is a downturn).

Last week’s 4.5% gain means that institutional investors were on the positive end of the spectrum even as the company has shown strong longer-term trends. The one-year return on investment is currently 56% and last week's gain would have been more than welcomed.

Let's take a closer look to see what the different types of shareholders can tell us about Downer EDI.

View our latest analysis for Downer EDI

What Does The Institutional Ownership Tell Us About Downer EDI?

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.

As you can see, institutional investors have a fair amount of stake in Downer EDI. 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 Downer EDI'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. Downer EDI is not owned by hedge funds. Orbis Investment Management Limited is currently the largest shareholder, with 10% of shares outstanding. In comparison, the second and third largest shareholders hold about 8.5% and 8.2% of the stock.

On further inspection, we found that more than half the company's shares are owned by the top 7 shareholders, suggesting that the interests of the larger shareholders are balanced out to an extent by the smaller ones.

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 a reasonable number of analysts covering the stock, so it might be useful to find out their aggregate view on the future.

Insider Ownership Of Downer EDI

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.

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 data suggests that insiders own under 1% of Downer EDI Limited in their own names. It's a big company, so even a small proportional interest can create alignment between the board and shareholders. In this case insiders own AU$20m worth of shares. Arguably, recent buying and selling is just as important to consider. You can click here to see if insiders have been buying or selling.

General Public Ownership

The general public, who are usually individual investors, hold a 14% stake in Downer EDI. While this size of ownership may not be enough to sway a policy decision in their favour, they can still make a collective impact on company policies.

Next Steps:

It's always worth thinking about the different groups who own shares in a company. But to understand Downer EDI better, we need to consider many other factors. To that end, you should be aware of the 1 warning sign we've spotted with Downer EDI .

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.

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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.