Institutional investors may overlook NovaGold Resources Inc.'s (TSE:NG) recent CA$97m market cap drop as long-term gains remain positive

Key Insights

• Significantly high institutional ownership implies NovaGold Resources' stock price is sensitive to their trading actions
• 51% of the business is held by the top 5 shareholders
• Ownership research, combined with past performance data can help provide a good understanding of opportunities in a stock

If you want to know who really controls NovaGold Resources Inc. (TSE:NG), then you'll have to look at the makeup of its share registry. The group holding the most number of shares in the company, around 74% to be precise, is institutions. Put another way, the group faces the maximum upside potential (or downside risk).

Institutional investors was the group most impacted after the company's market cap fell to CA$1.4b last week. Still, the 33% one-year gains may have helped mitigate their overall losses. We would assume however, that they would be on the lookout for weakness in the future.

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

Check out our latest analysis for NovaGold Resources

What Does The Institutional Ownership Tell Us About NovaGold Resources?

Many institutions measure their performance against an index that approximates the local market. So they usually pay more attention to companies that are included in major indices.

As you can see, institutional investors have a fair amount of stake in NovaGold Resources. 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. It is not uncommon to see a big share price drop if two large institutional investors try to sell out of a stock at the same time. So it is worth checking the past earnings trajectory of NovaGold Resources, (below). Of course, keep in mind that there are other factors to consider, too.

Investors should note that institutions actually own more than half the company, so they can collectively wield significant power. It looks like hedge funds own 8.1% of NovaGold Resources shares. That catches my attention because hedge funds sometimes try to influence management, or bring about changes that will create near term value for shareholders. The company's largest shareholder is Electrum Strategic Resources LLC, with ownership of 24%. Meanwhile, the second and third largest shareholders, hold 8.1% and 7.8%, of the shares outstanding, respectively. In addition, we found that Gregory Lang, the CEO has 0.6% of the shares allocated to their name.

On looking further, we found that 51% of the shares are owned by the top 5 shareholders. In other words, these shareholders have a meaningful say in the decisions of the company.

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 is some analyst coverage of the stock, but it could still become more well known, with time.

Insider Ownership Of NovaGold Resources

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.

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 most recent data indicates that insiders own some shares in NovaGold Resources Inc.. It has a market capitalization of just CA$1.4b, and insiders have CA$15m 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, who are usually individual investors, hold a 15% stake in NovaGold Resources. 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:

It's always worth thinking about the different groups who own shares in a company. But to understand NovaGold Resources better, we need to consider many other factors. To that end, you should learn about the 4 warning signs we've spotted with NovaGold Resources (including 3 which shouldn't be ignored) .

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.