Stock Analysis

Institutional owners may take dramatic actions as Software Aktiengesellschaft's (ETR:SOW) recent 4.2% drop adds to one-year losses

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XTRA:SOW
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If you want to know who really controls Software Aktiengesellschaft (ETR:SOW), then you'll have to look at the makeup of its share registry. We can see that institutions own the lion's share in the company with 50% ownership. 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 €78m. Needless to say, the recent loss which further adds to the one-year loss to shareholders of 33% might not go down well especially with this category of shareholders. Often called “market makers”, institutions wield significant power in influencing the price dynamics of any stock. As a result, if the downtrend continues, institutions may face pressures to sell Software, which might have negative implications on individual investors.

Let's delve deeper into each type of owner of Software, beginning with the chart below.

Our analysis indicates that SOW is potentially undervalued!

ownership-breakdown
XTRA:SOW Ownership Breakdown December 1st 2022

What Does The Institutional Ownership Tell Us About 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.

As you can see, institutional investors have a fair amount of stake in Software. 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. 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 Software, (below). Of course, keep in mind that there are other factors to consider, too.

earnings-and-revenue-growth
XTRA:SOW Earnings and Revenue Growth December 1st 2022

Investors should note that institutions actually own more than half the company, so they can collectively wield significant power. We note that hedge funds don't have a meaningful investment in Software. Our data shows that Software Ag Stiftung, Endowment Arm is the largest shareholder with 31% of shares outstanding. With 9.4% and 5.0% of the shares outstanding respectively, Kempen Capital Management N.V. and Schroder Investment Management Limited are the second and third largest shareholders.

To make our study more interesting, we found that the top 5 shareholders control more than half of the company which implies that this group has considerable sway over the company's decision-making.

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

Insider Ownership Of Software

The definition of company insiders can be subjective and does vary between jurisdictions. Our data reflects individual insiders, capturing board members at the very least. 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 data cannot confirm that board members are holding shares personally. It is unusual not to have at least some personal holdings by board members, so our data might be flawed. A good next step would be to check how much the CEO is paid.

General Public Ownership

The general public, who are usually individual investors, hold a 18% stake in Software. 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:

While it is well worth considering the different groups that own a company, there are other factors that are even more important. To that end, you should learn about the 2 warning signs we've spotted with Software (including 1 which is concerning) .

If you are like me, you may want to think about whether this company will grow or shrink. Luckily, you can check this free report showing analyst forecasts for its 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.

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