Institutional owners may consider drastic measures as 3R Petroleum Óleo e Gás S.A.'s (BVMF:RRRP3) recent R$305m drop adds to long-term losses

Key Insights

• Significantly high institutional ownership implies 3R Petroleum Óleo e Gás' stock price is sensitive to their trading actions
• A total of 14 investors have a majority stake in the company with 51% ownership
• Analyst forecasts along with ownership data serve to give a strong idea about prospects for a business

To get a sense of who is truly in control of 3R Petroleum Óleo e Gás S.A. (BVMF:RRRP3), it is important to understand the ownership structure of the business. The group holding the most number of shares in the company, around 57% to be precise, is institutions. In other words, the group stands to gain the most (or lose the most) from their investment into the company.

And so it follows that institutional investors was the group most impacted after the company's market cap fell to R$7.8b last week after a 3.9% drop in the share price. Needless to say, the recent loss which further adds to the one-year loss to shareholders of 27% might not go down well especially with this category of shareholders. Often called “market movers", institutions wield significant power in influencing the price dynamics of any stock. Hence, if weakness in 3R Petroleum Óleo e Gás' share price continues, institutional investors may feel compelled to sell the stock, which might not be ideal for individual investors.

In the chart below, we zoom in on the different ownership groups of 3R Petroleum Óleo e Gás.

View our latest analysis for 3R Petroleum Óleo e Gás

What Does The Institutional Ownership Tell Us About 3R Petroleum Óleo e Gás?

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.

As you can see, institutional investors have a fair amount of stake in 3R Petroleum Óleo e Gás. 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. 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 3R Petroleum Óleo e Gás' historic earnings and revenue below, but keep in mind there's always more to the story.

Institutional investors own over 50% of the company, so together than can probably strongly influence board decisions. We note that hedge funds don't have a meaningful investment in 3R Petroleum Óleo e Gás. Gerval Investimentos Ltda. is currently the company's largest shareholder with 8.4% of shares outstanding. For context, the second largest shareholder holds about 5.8% of the shares outstanding, followed by an ownership of 5.0% by the third-largest shareholder.

Looking at the shareholder registry, we can see that 51% of the ownership is controlled by the top 14 shareholders, meaning that no single shareholder has a majority interest in the ownership.

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 plenty of analysts covering the stock, so it might be worth seeing what they are forecasting, too.

Insider Ownership Of 3R Petroleum Óleo e Gás

While the precise definition of an insider can be subjective, almost everyone considers board members to be insiders. Company management run the business, but the CEO will answer to the board, even if he or she is a member of it.

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 cannot confirm that board members are holding shares personally. It is unusual not to have at least some personal holdings by board members, so our data might be flawed. A good next step would be to check how much the CEO is paid.

General Public Ownership

The general public-- including retail investors -- own 38% stake in the company, and hence can't easily be ignored. While this size of ownership may not be enough to sway a policy decision in their favour, they can still make a collective impact on company policies.

Private Company Ownership

We can see that Private Companies own 5.0%, 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:

It's always worth thinking about the different groups who own shares in a company. But to understand 3R Petroleum Óleo e Gás better, we need to consider many other factors. Take risks for example - 3R Petroleum Óleo e Gás has 3 warning signs (and 2 which are concerning) we think you should know about.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.