Painful week for retail investors invested in Zip Co Limited (ASX:ZIP) after 8.2% drop, institutions also suffered losses

Key Insights

• The considerable ownership by retail investors in Zip Co indicates that they collectively have a greater say in management and business strategy
• A total of 25 investors have a majority stake in the company with 40% ownership
• Recent sales by insiders

To get a sense of who is truly in control of Zip Co Limited (ASX:ZIP), it is important to understand the ownership structure of the business. With 59% stake, retail investors possess the maximum shares in the company. Put another way, the group faces the maximum upside potential (or downside risk).

Following a 8.2% decrease in the stock price last week, retail investors suffered the most losses, but institutions who own 31% stock also took a hit.

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

View our latest analysis for Zip Co

What Does The Institutional Ownership Tell Us About Zip Co?

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.

Zip Co already has institutions on the share registry. Indeed, they own a respectable stake in the company. 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 Zip Co'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 Zip Co. State Street Global Advisors, Inc. is currently the company's largest shareholder with 6.0% of shares outstanding. For context, the second largest shareholder holds about 5.1% of the shares outstanding, followed by an ownership of 4.2% by the third-largest shareholder. Larry Diamond, who is the third-largest shareholder, also happens to hold the title of Member of the Board of Directors.

Our studies suggest that the top 25 shareholders collectively control less than half of the company's shares, meaning that the company's shares are widely disseminated and there is no dominant shareholder.

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 Zip Co

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.

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.

Our most recent data indicates that insiders own some shares in Zip Co Limited. The insiders have a meaningful stake worth AU$265m. Most would see this as a real positive. If you would like to explore the question of insider alignment, you can click here to see if insiders have been buying or selling.

General Public Ownership

The general public -- including retail investors -- own 59% of Zip Co. This level of ownership gives investors from the wider public some power to sway key policy decisions such as board composition, executive compensation, and the dividend payout ratio.

Next Steps:

It's always worth thinking about the different groups who own shares in a company. But to understand Zip Co better, we need to consider many other factors. Be aware that Zip Co is showing 3 warning signs in our investment analysis , and 1 of those makes us a bit uncomfortable...

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.