Institutional investors may adopt severe steps after Natura &Co Holding S.A.'s (BVMF:NTCO3) latest 4.5% drop adds to a year losses

By
Simply Wall St
Published
March 14, 2022
BOVESPA:NTCO3
Source: Shutterstock

Every investor in Natura &Co Holding S.A. (BVMF:NTCO3) should be aware of the most powerful shareholder groups. With 42% stake, institutions possess the maximum shares in the company. Put another way, the group faces the maximum upside potential (or downside risk).

As a result, institutional investors endured the highest losses last week after market cap fell by R$1.5b. The recent loss, which adds to a one-year loss of 57% for stockholders, may not sit well with this group of investors. Also referred to as "smart money", institutions have a lot of sway over how a stock's price moves. As a result, if the decline continues, institutional investors may be pressured to sell Natura &Co Holding which might hurt individual investors.

Let's take a closer look to see what the different types of shareholders can tell us about Natura &Co Holding.

See our latest analysis for Natura &Co Holding

ownership-breakdown
BOVESPA:NTCO3 Ownership Breakdown March 14th 2022

What Does The Institutional Ownership Tell Us About Natura &Co Holding?

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.

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

earnings-and-revenue-growth
BOVESPA:NTCO3 Earnings and Revenue Growth March 14th 2022

We note that hedge funds don't have a meaningful investment in Natura &Co Holding. Because actions speak louder than words, we consider it a good sign when insiders own a significant stake in a company. In Natura &Co Holding's case, its Top Key Executive, Antonio da Cunha Seabra, is the largest shareholder, holding 14% of shares outstanding. Meanwhile, the second and third largest shareholders, hold 7.2% and 5.7%, of the shares outstanding, respectively.

Looking at the shareholder registry, we can see that 51% of the ownership is controlled by the top 11 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 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 Natura &Co Holding

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 information suggests that insiders maintain a significant holding in Natura &Co Holding S.A.. Insiders own R$11b worth of shares in the R$29b company. That's quite meaningful. Most would be pleased to see the board is investing alongside them. You may wish to access this free chart showing recent trading by insiders.

General Public Ownership

The general public, who are usually individual investors, hold a 21% stake in Natura &Co Holding. 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.

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 2 warning signs for Natura &Co Holding that you should be aware of before investing here.

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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