Institutional owners may consider drastic measures as CGI Inc.'s (TSE:GIB.A) recent CA$905m drop adds to long-term losses

Key Insights

• Given the large stake in the stock by institutions, CGI's stock price might be vulnerable to their trading decisions
• 51% of the business is held by the top 20 shareholders
• Recent purchases by insiders

Trump has pledged to "unleash" American oil and gas and these 15 US stocks have developments that are poised to benefit.

To get a sense of who is truly in control of CGI Inc. (TSE:GIB.A), it is important to understand the ownership structure of the business. We can see that institutions own the lion's share in the company with 61% ownership. 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 CA$29b last week after a 3.1% drop in the share price. This set of investors may especially be concerned about the current loss, which adds to a one-year loss of 18% for shareholders. 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 CGI which might hurt individual investors.

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

View our latest analysis for CGI

What Does The Institutional Ownership Tell Us About CGI?

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 CGI. 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. If multiple institutions change their view on a stock at the same time, you could see the share price drop fast. It's therefore worth looking at CGI's earnings history below. Of course, the future is what really matters.

Investors should note that institutions actually own more than half the company, so they can collectively wield significant power. Hedge funds don't have many shares in CGI. Distinction Capital is currently the largest shareholder, with 11% of shares outstanding. For context, the second largest shareholder holds about 7.4% of the shares outstanding, followed by an ownership of 4.6% by the third-largest shareholder.

After doing some more digging, we found that the top 20 have the combined ownership of 51% in the company, suggesting that no single shareholder has significant control over 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. Quite a few analysts cover the stock, so you could look into forecast growth quite easily.

Insider Ownership Of CGI

The definition of an insider can differ slightly between different countries, but members of the board of directors always count. 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 most recent data indicates that insiders own less than 1% of CGI Inc.. As it is a large company, we'd only expect insiders to own a small percentage of it. But it's worth noting that they own CA$61m worth of shares. It is good to see board members owning shares, but it might be worth checking if those insiders have been buying.

General Public Ownership

The general public-- including retail investors -- own 27% stake in the company, and hence can't easily be ignored. 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.

Private Equity Ownership

With a stake of 11%, private equity firms could influence the CGI board. Some investors might be encouraged by this, since private equity are sometimes able to encourage strategies that help the market see the value in the company. Alternatively, those holders might be exiting the investment after taking it public.

Next Steps:

While it is well worth considering the different groups that own a company, there are other factors that are even more important.

I always like to check for a history of revenue growth. You can too, by accessing this free chart of historic revenue and earnings in this detailed graph.

But ultimately it is the future, not the past, that will determine how well the owners of this business will do. Therefore we think it advisable to take a look at this free report showing whether analysts are predicting a brighter future.

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.