Institutional investors may adopt severe steps after Absolute Software Corporation's (TSE:ABST) latest 10% drop adds to a year losses

By
Simply Wall St
Published
January 08, 2022
TSX:ABST
Source: Shutterstock

If you want to know who really controls Absolute Software Corporation (TSE:ABST), then you'll have to look at the makeup of its share registry. With 71% stake, institutions possess the maximum shares in the company. That is, the group stands to benefit the most if the stock rises (or lose the most if there is a downturn).

And so it follows that institutional investors was the group most impacted after the company's market cap fell to CA$530m last week after a 10% drop in the share price. The recent loss, which adds to a one-year loss of 29% 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 downtrend continues, institutions may face pressures to sell Absolute Software, which might have negative implications on individual investors.

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

View our latest analysis for Absolute Software

ownership-breakdown
TSX:ABST Ownership Breakdown January 8th 2022

What Does The Institutional Ownership Tell Us About Absolute Software?

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 Absolute Software 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. 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 Absolute Software, (below). Of course, keep in mind that there are other factors to consider, too.

earnings-and-revenue-growth
TSX:ABST Earnings and Revenue Growth January 8th 2022

Since institutional investors own more than half the issued stock, the board will likely have to pay attention to their preferences. It looks like hedge funds own 17% of Absolute Software 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. Trigran Investments, Inc. is currently the largest shareholder, with 9.3% of shares outstanding. With 8.0% and 6.6% of the shares outstanding respectively, Edenbrook Capital Partners, LLC and Exchange Traded Concepts, LLC are the second and third largest shareholders.

We also observed that the top 10 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.

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

Insider Ownership Of Absolute Software

While the precise definition of an insider can be subjective, almost everyone considers board members to be insiders. The company management answer to the board and the latter should represent the interests of shareholders. Notably, sometimes top-level managers are on the board themselves.

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 Absolute Software Corporation insiders own under 1% of the company. It seems the board members have no more than CA$4.1m worth of shares in the CA$530m company. We generally like to see a board more invested. However it might be worth checking if those insiders have been buying.

General Public Ownership

The general public, who are usually individual investors, hold a 11% stake in Absolute Software. While this group can't necessarily call the shots, it can certainly have a real influence on how the company is run.

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. Be aware that Absolute Software is showing 4 warning signs in our investment analysis , and 2 of those don't sit too well with us...

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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