Institutions along with private equity firms who hold considerable shares inSoftchoice Corporation (TSE:SFTC) come under pressure; lose 7.8% of holdings value

Key Insights

• Softchoice's significant private equity firms ownership suggests that the key decisions are influenced by shareholders from the larger public
• The top 2 shareholders own 58% of the company
• Institutions own 28% of Softchoice

Every investor in Softchoice Corporation (TSE:SFTC) should be aware of the most powerful shareholder groups. We can see that private equity firms own the lion's share in the company with 45% ownership. Put another way, the group faces the maximum upside potential (or downside risk).

While institutions, who own 28% shares weren’t spared from last week’s CA$86m market cap drop, private equity firms as a group suffered the maximum losses

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

Check out our latest analysis for Softchoice

What Does The Institutional Ownership Tell Us About Softchoice?

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.

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

Softchoice is not owned by hedge funds. The company's largest shareholder is Birch Hill Equity Partners Management Inc., with ownership of 45%. In comparison, the second and third largest shareholders hold about 13% and 3.1% of the stock. Vincent De Palma, who is the third-largest shareholder, also happens to hold the title of Chairman of the Board. Furthermore, CEO Andrew Caprara is the owner of 0.7% of the company's shares.

After doing some more digging, we found that the top 2 shareholders collectively control more than half of the company's shares, implying that they have considerable power to influence the company's decisions.

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 Softchoice

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.

We can see that insiders own shares in Softchoice Corporation. It has a market capitalization of just CA$1.1b, and insiders have CA$67m 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 20% stake in Softchoice. While this group can't necessarily call the shots, it can certainly have a real influence on how the company is run.

Private Equity Ownership

With an ownership of 45%, private equity firms are in a position to play a role in shaping corporate strategy with a focus on value creation. Some might like this, because private equity are sometimes activists who hold management accountable. But other times, private equity is selling out, having taking the company 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. For example, we've discovered 4 warning signs for Softchoice (1 is concerning!) 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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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.