Retail investors who hold 48% of Red 5 Limited (ASX:RED) gained 10.0%, institutions profited as well

Key Insights

• The considerable ownership by retail investors in Red 5 indicates that they collectively have a greater say in management and business strategy
• 50% of the business is held by the top 25 shareholders
• Insiders have sold recently

Every investor in Red 5 Limited (ASX:RED) should be aware of the most powerful shareholder groups. We can see that retail investors own the lion's share in the company with 48% ownership. That is, the group stands to benefit the most if the stock rises (or lose the most if there is a downturn).

Following a 10.0% increase in the stock price last week, retail investors profited the most, but institutions who own 43% stock also stood to gain from the increase.

Let's take a closer look to see what the different types of shareholders can tell us about Red 5.

View our latest analysis for Red 5

What Does The Institutional Ownership Tell Us About Red 5?

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 Red 5. 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 5's historic earnings and revenue below, but keep in mind there's always more to the story.

It would appear that 6.2% of Red 5 shares are controlled by hedge funds. That catches my attention because hedge funds sometimes try to influence management, or bring about changes that will create near term value for shareholders. Looking at our data, we can see that the largest shareholder is Van Eck Associates Corporation with 9.1% of shares outstanding. For context, the second largest shareholder holds about 6.6% of the shares outstanding, followed by an ownership of 6.2% by the third-largest shareholder.

A closer look at our ownership figures suggests that the top 25 shareholders have a combined ownership of 50% implying that no single shareholder has a majority.

While studying institutional ownership for a company can add value to your research, it is also a good practice to research analyst recommendations to get a deeper understand of a stock's expected performance. 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 Red 5

The definition of an insider can differ slightly between different countries, but members of the board of directors always count. 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 some shares in Red 5 Limited. This is a big company, so it is good to see this level of alignment. Insiders own AU$30m worth of shares (at current prices). 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

With a 48% ownership, the general public, mostly comprising of individual investors, have some degree of sway over Red 5. 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. For example, we've discovered 2 warning signs for Red 5 (1 is a bit concerning!) that you should be aware of before investing here.

Ultimately the future is most important. You can access this free report on analyst forecasts for the company.

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.