Institutional owners may take dramatic actions as Megaport Limited's (ASX:MP1) recent 7.6% drop adds to one-year losses

Key Insights

• Given the large stake in the stock by institutions, Megaport's stock price might be vulnerable to their trading decisions
• The top 9 shareholders own 53% of the company
• Ownership research along with analyst forecasts data help provide a good understanding of opportunities in a stock

To get a sense of who is truly in control of Megaport Limited (ASX:MP1), it is important to understand the ownership structure of the business. And the group that holds the biggest piece of the pie are institutions with 66% ownership. That is, the group stands to benefit the most if the stock rises (or lose the most if there is a downturn).

And institutional investors endured the highest losses after the company's share price fell by 7.6% last week. The recent loss, which adds to a one-year loss of 57% for stockholders, may not sit well with this group of investors. Institutions or "liquidity providers" control large sums of money and therefore, these types of investors usually have a lot of influence over stock price movements. Hence, if weakness in Megaport's share price continues, institutional investors may feel compelled to sell the stock, which might not be ideal for individual investors.

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

See our latest analysis for Megaport

What Does The Institutional Ownership Tell Us About Megaport?

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.

We can see that Megaport 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. 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 Megaport's historic earnings and revenue below, but keep in mind there's always more to the story.

Investors should note that institutions actually own more than half the company, so they can collectively wield significant power. Megaport is not owned by hedge funds. First Sentier Investors (Australia) IM Ltd is currently the company's largest shareholder with 11% of shares outstanding. In comparison, the second and third largest shareholders hold about 7.1% and 5.6% of the stock. Additionally, the company's CEO Vincent English directly holds 0.6% of the total shares outstanding.

We did some more digging and found that 9 of the top shareholders account for roughly 53% of the register, implying that along with larger shareholders, there are a few smaller shareholders, thereby balancing out each others interests somewhat.

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 Megaport

While the precise definition of an insider can be subjective, almost everyone considers board members to be insiders. 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.

We can see that insiders own shares in Megaport Limited. It has a market capitalization of just AU$917m, and insiders have AU$54m worth of shares, in their own names. Some would say this shows alignment of interests between shareholders and the board. But it might be worth checking if those insiders have been selling.

General Public Ownership

The general public-- including retail investors -- own 28% stake in the company, and hence can't easily be ignored. 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.

I like to dive deeper into how a company has performed in the past. You can find historic revenue and earnings in this detailed graph.

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.