While institutions invested in Appen Limited (ASX:APX) benefited from last week's 11% gain, retail investors stood to gain the most

Key Insights

• The considerable ownership by retail investors in Appen indicates that they collectively have a greater say in management and business strategy
• 42% of the business is held by the top 25 shareholders
• Institutions own 28% of Appen

Our free stock report includes 2 warning signs investors should be aware of before investing in Appen. Read for free now.

To get a sense of who is truly in control of Appen Limited (ASX:APX), it is important to understand the ownership structure of the business. We can see that retail investors own the lion's share in the company with 58% ownership. Put another way, the group faces the maximum upside potential (or downside risk).

Retail investors gained the most after market cap touched AU$235m last week, while institutions who own 28% also benefitted.

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

View our latest analysis for Appen

What Does The Institutional Ownership Tell Us About Appen?

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 Appen does have institutional investors; and they hold a good portion of the company's stock. This suggests some credibility amongst professional investors. But we can't rely on that fact alone since institutions make bad investments sometimes, just like everyone does. 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 Appen's historic earnings and revenue below, but keep in mind there's always more to the story.

Appen is not owned by hedge funds. The company's largest shareholder is UBS Asset Management AG, with ownership of 4.8%. For context, the second largest shareholder holds about 4.3% of the shares outstanding, followed by an ownership of 4.1% 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.

While it makes sense to study institutional ownership data for a company, it also makes sense to study analyst sentiments to know which way the wind is blowing. Quite a few analysts cover the stock, so you could look into forecast growth quite easily.

Insider Ownership Of Appen

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 some shares in Appen Limited. It has a market capitalization of just AU$235m, and insiders have AU$23m worth of shares, in their own names. Some would say this shows alignment of interests between shareholders and the board, though we generally prefer to see bigger insider holdings. But it might be worth checking if those insiders have been selling.

General Public Ownership

The general public, who are usually individual investors, hold a substantial 58% stake in Appen, suggesting it is a fairly popular stock. 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 3.6%, 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. Consider risks, for instance. Every company has them, and we've spotted 2 warning signs for Appen you should know about.

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.