Great week for NEXTDC Limited (ASX:NXT) institutional investors after losing 21% over the previous year

Key Insights

• Institutions' substantial holdings in NEXTDC implies that they have significant influence over the company's share price
• 49% of the business is held by the top 25 shareholders
• Analyst forecasts along with ownership data serve to give a strong idea about prospects for a business

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To get a sense of who is truly in control of NEXTDC Limited (ASX:NXT), it is important to understand the ownership structure of the business. The group holding the most number of shares in the company, around 52% to be precise, is institutions. Put another way, the group faces the maximum upside potential (or downside risk).

Institutional investors would probably welcome last week's 5.1% increase in the share price after a year of 21% losses as a sign that returns may to begin trending higher.

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

See our latest analysis for NEXTDC

What Does The Institutional Ownership Tell Us About NEXTDC?

Institutions typically measure themselves against a benchmark when reporting to their own investors, so they often become more enthusiastic about a stock once it's included in a major index. We would expect most companies to have some institutions on the register, especially if they are growing.

NEXTDC already has institutions on the share registry. Indeed, they own a respectable stake in the company. This implies the analysts working for those institutions have looked at the stock and they like it. But just like anyone else, they could be wrong. 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 NEXTDC's earnings history below. Of course, the future is what really matters.

Institutional investors own over 50% of the company, so together than can probably strongly influence board decisions. Hedge funds don't have many shares in NEXTDC. State Street Global Advisors, Inc. is currently the company's largest shareholder with 8.4% of shares outstanding. In comparison, the second and third largest shareholders hold about 7.5% and 5.8% of the stock.

A deeper look at our ownership data shows that the top 25 shareholders collectively hold less than half of the register, suggesting a large group of small holders where no single shareholder has a majority.

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 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 NEXTDC

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.

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 data suggests that insiders own under 1% of NEXTDC Limited in their own names. It's a big company, so even a small proportional interest can create alignment between the board and shareholders. In this case insiders own AU$48m worth of shares. It is always good to see at least some insider ownership, but it might be worth checking if those insiders have been selling.

General Public Ownership

The general public-- including retail investors -- own 47% 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. For example, we've discovered 4 warning signs for NEXTDC (2 are significant!) 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.