In the wake of Algonquin Power & Utilities Corp.'s (TSE:AQN) latest CA$215m market cap drop, institutional owners may be forced to take severe actions

Key Insights

• Significantly high institutional ownership implies Algonquin Power & Utilities' stock price is sensitive to their trading actions
• A total of 25 investors have a majority stake in the company with 46% ownership
• Insiders have bought recently

Every investor in Algonquin Power & Utilities Corp. (TSE:AQN) should be aware of the most powerful shareholder groups. The group holding the most number of shares in the company, around 53% to be precise, is institutions. 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 CA$215m. Needless to say, the recent loss which further adds to the one-year loss to shareholders of 20% might not go down well especially with this category of 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 Algonquin Power & Utilities which might hurt individual investors.

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

Check out our latest analysis for Algonquin Power & Utilities

What Does The Institutional Ownership Tell Us About Algonquin Power & Utilities?

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 Algonquin Power & Utilities 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 Algonquin Power & Utilities' historic earnings and revenue below, but keep in mind there's always more to the story.

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 Algonquin Power & Utilities shares. That worth noting, since hedge funds are often quite active investors, who may try to influence management. Many want to see value creation (and a higher share price) in the short term or medium term. Starboard Value LP is currently the largest shareholder, with 8.1% of shares outstanding. In comparison, the second and third largest shareholders hold about 6.1% and 4.0% of the stock.

On studying our ownership data, we found that 25 of the top shareholders collectively own less than 50% of the share register, implying that no single individual has a majority interest.

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 Algonquin Power & Utilities

The definition of an insider can differ slightly between different countries, but members of the board of directors always count. Management ultimately answers to the board. However, it is not uncommon for managers to be executive board members, especially if they are a founder or the CEO.

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 Algonquin Power & Utilities Corp.. It is a pretty big company, so it would be possible for board members to own a meaningful interest in the company, without owning much of a proportional interest. In this case, they own around CA$3.1m worth of shares (at current prices). 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, who are usually individual investors, hold a 39% stake in Algonquin Power & Utilities. 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 Algonquin Power & Utilities better, we need to consider many other factors. For example, we've discovered 3 warning signs for Algonquin Power & Utilities (1 doesn't sit too well with us!) that you should be aware of before investing here.

Ultimately the future is most important. You can access this free report on analyst forecasts for the company.

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.