Institutional owners may ignore Atlas Arteria Limited's (ASX:ALX) recent AU$211m market cap decline as longer-term profits stay in the green

By
Simply Wall St
Published
February 13, 2022
ASX:ALX
Source: Shutterstock

Every investor in Atlas Arteria Limited (ASX:ALX) should be aware of the most powerful shareholder groups. And the group that holds the biggest piece of the pie are institutions with 70% ownership. That is, the group stands to benefit the most if the stock rises (or lose the most if there is a downturn).

Institutional investors was the group most impacted after the company's market cap fell to AU$6.4b last week. However, the 17% one-year returns may have helped alleviate their overall losses. But they would probably be wary of future losses.

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

View our latest analysis for Atlas Arteria

ownership-breakdown
ASX:ALX Ownership Breakdown February 13th 2022

What Does The Institutional Ownership Tell Us About Atlas Arteria?

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.

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

earnings-and-revenue-growth
ASX:ALX Earnings and Revenue Growth February 13th 2022

Since institutional investors own more than half the issued stock, the board will likely have to pay attention to their preferences. We note that hedge funds don't have a meaningful investment in Atlas Arteria. Lazard Asset Management LLC is currently the company's largest shareholder with 11% of shares outstanding. Meanwhile, the second and third largest shareholders, hold 6.3% and 5.2%, of the shares outstanding, respectively.

We also observed that the top 9 shareholders account for more than half of the share register, with a few smaller shareholders to balance the interests of the larger ones to a certain extent.

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 Atlas Arteria

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

I generally consider insider ownership to be a good thing. However, on some occasions it makes it more difficult for other shareholders to hold the board accountable for decisions.

Our data suggests that insiders own under 1% of Atlas Arteria Limited in their own names. It is a pretty big company, so it would be possible for board members to own a meaningful interest in the company, without owning much of a proportional interest. In this case, they own around AU$3.5m worth of shares (at current prices). Arguably, recent buying and selling is just as important to consider. You can click here to see if insiders have been buying or selling.

General Public Ownership

The general public, who are usually individual investors, hold a 30% stake in Atlas Arteria. 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. Consider for instance, the ever-present spectre of investment risk. We've identified 2 warning signs with Atlas Arteria (at least 1 which doesn't sit too well with us) , and understanding them should be part of your investment process.

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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