Institutional owners may consider drastic measures as Nanosonics Limited's (ASX:NAN) recent AU$75m drop adds to long-term losses

Key Insights

• Significantly high institutional ownership implies Nanosonics' stock price is sensitive to their trading actions
• The top 10 shareholders own 53% of the company
• Insiders own 15% of Nanosonics

A look at the shareholders of Nanosonics Limited (ASX:NAN) can tell us which group is most powerful. The group holding the most number of shares in the company, around 63% to be precise, is institutions. In other words, the group stands to gain the most (or lose the most) from their investment into the company.

And so it follows that institutional investors was the group most impacted after the company's market cap fell to AU$1.3b last week after a 5.4% drop in the share price. This set of investors may especially be concerned about the current loss, which adds to a one-year loss of 1.6% for shareholders. Also referred to as "smart money", institutions have a lot of sway over how a stock's price moves. As a result, if the downtrend continues, institutions may face pressures to sell Nanosonics, which might have negative implications on individual investors.

In the chart below, we zoom in on the different ownership groups of Nanosonics.

Check out our latest analysis for Nanosonics

What Does The Institutional Ownership Tell Us About Nanosonics?

Many institutions measure their performance against an index that approximates the local market. So they usually pay more attention to companies that are included in major indices.

We can see that Nanosonics 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. If multiple institutions change their view on a stock at the same time, you could see the share price drop fast. It's therefore worth looking at Nanosonics' earnings history below. Of course, the future is what really matters.

Investors should note that institutions actually own more than half the company, so they can collectively wield significant power. Hedge funds don't have many shares in Nanosonics. Our data shows that Selector Funds Management Limited is the largest shareholder with 7.3% of shares outstanding. For context, the second largest shareholder holds about 6.3% of the shares outstanding, followed by an ownership of 5.5% by the third-largest shareholder.

We also observed that the top 10 shareholders account for more than half of the share register, with a few smaller shareholders to balance the interests of the larger ones to a certain extent.

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. Quite a few analysts cover the stock, so you could look into forecast growth quite easily.

Insider Ownership Of Nanosonics

The definition of an insider can differ slightly between different countries, but members of the board of directors always count. Company management run the business, but the CEO will answer to the board, even if he or she is a member of it.

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.

Our most recent data indicates that insiders own a reasonable proportion of Nanosonics Limited. It has a market capitalization of just AU$1.3b, and insiders have AU$200m worth of shares in their own names. It is great to see insiders so invested in the business. It might be worth checking if those insiders have been buying recently.

General Public Ownership

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

Many find it useful to take an in depth look at how a company has performed in the past. You can access this detailed graph of past earnings, revenue and cash flow.

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.