Individual investors invested in American Rare Earths Limited (ASX:ARR) copped the brunt of last week's AU$35m market cap decline

By
Simply Wall St
Published
February 18, 2022
ASX:ARR
Source: Shutterstock

Every investor in American Rare Earths Limited (ASX:ARR) should be aware of the most powerful shareholder groups. The group holding the most number of shares in the company, around 59% to be precise, is individual investors. Put another way, the group faces the maximum upside potential (or downside risk).

While insiders, who own 18% shares weren’t spared from last week’s AU$35m market cap drop, individual investors as a group suffered the maximum losses

Let's delve deeper into each type of owner of American Rare Earths, beginning with the chart below.

View our latest analysis for American Rare Earths

ownership-breakdown
ASX:ARR Ownership Breakdown February 18th 2022

What Does The Institutional Ownership Tell Us About American Rare Earths?

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.

As you can see, institutional investors have a fair amount of stake in American Rare Earths. 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 American Rare Earths' historic earnings and revenue below, but keep in mind there's always more to the story.

earnings-and-revenue-growth
ASX:ARR Earnings and Revenue Growth February 18th 2022

Hedge funds don't have many shares in American Rare Earths. Looking at our data, we can see that the largest shareholder is Fidelity International Ltd with 9.9% of shares outstanding. For context, the second largest shareholder holds about 9.0% of the shares outstanding, followed by an ownership of 8.7% by the third-largest shareholder.

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. We're not picking up on any analyst coverage of the stock at the moment, so the company is unlikely to be widely held.

Insider Ownership Of American Rare Earths

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.

Our most recent data indicates that insiders own a reasonable proportion of American Rare Earths Limited. Insiders have a AU$27m stake in this AU$151m business. This may suggest that the founders still own a lot of shares. You can click here to see if they have been buying or selling.

General Public Ownership

The general public, mostly comprising of individual investors, collectively holds 59% of American Rare Earths shares. 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.

Private Company Ownership

We can see that Private Companies own 14%, of the shares on issue. It's hard to draw any conclusions from this fact alone, so its worth looking into who owns those private companies. Sometimes insiders or other related parties have an interest in shares in a public company through a separate private company.

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. Case in point: We've spotted 4 warning signs for American Rare Earths you should be aware of.

If you would prefer check out another company -- one with potentially superior financials -- then do not miss this free list of interesting companies, backed by strong financial data.

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.

Discounted cash flow calculation for every stock

Simply Wall St does a detailed discounted cash flow calculation every 6 hours for every stock on the market, so if you want to find the intrinsic value of any company just search here. It’s FREE.

Make Confident Investment Decisions

Simply Wall St's Editorial Team provides unbiased, factual reporting on global stocks using in-depth fundamental analysis.
Find out more about our editorial guidelines and team.