Rainbow Rare Earths Limited's (LON:RBW) market cap up UK£7.9m last week, benefiting both retail investors who own 56% as well as insiders

Key Insights

• The considerable ownership by retail investors in Rainbow Rare Earths indicates that they collectively have a greater say in management and business strategy
• The top 13 shareholders own 44% of the company
• Insiders own 27% of Rainbow Rare Earths

To get a sense of who is truly in control of Rainbow Rare Earths Limited (LON:RBW), it is important to understand the ownership structure of the business. With 56% stake, retail investors possess the maximum shares in the company. Put another way, the group faces the maximum upside potential (or downside risk).

While retail investors were the group that benefitted the most from last week’s UK£7.9m market cap gain, insiders too had a 27% share in those profits.

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

View our latest analysis for Rainbow Rare Earths

What Does The Lack Of Institutional Ownership Tell Us About Rainbow Rare Earths?

Institutional investors often avoid companies that are too small, too illiquid or too risky for their tastes. But it's unusual to see larger companies without any institutional investors.

There are multiple explanations for why institutions don't own a stock. The most common is that the company is too small relative to funds under management, so the institution does not bother to look closely at the company. It is also possible that fund managers don't own the stock because they aren't convinced it will perform well. Rainbow Rare Earths' earnings and revenue track record (below) may not be compelling to institutional investors -- or they simply might not have looked at the business closely.

Rainbow Rare Earths is not owned by hedge funds. Our data shows that Adonis Pouroulis is the largest shareholder with 13% of shares outstanding. TechMet Limited is the second largest shareholder owning 11% of common stock, and George Sidney Bennett holds about 5.8% of the company stock. George Sidney Bennett, who is the third-largest shareholder, also happens to hold the title of Member of the Board of Directors.

On studying our ownership data, we found that 13 of the top shareholders collectively own less than 50% of the share register, implying that no single individual has a majority interest.

While it makes sense to study institutional ownership data for a company, it also makes sense to study analyst sentiments to know which way the wind is blowing. 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 Rainbow Rare Earths

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. 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.

I generally consider insider ownership to be a good thing. However, on some occasions it makes it more difficult for other shareholders to hold the board accountable for decisions.

It seems insiders own a significant proportion of Rainbow Rare Earths Limited. It has a market capitalization of just UK£84m, and insiders have UK£23m worth of shares in their own names. We would say this shows alignment with shareholders, but it is worth noting that the company is still quite small; some insiders may have founded the business. You can click here to see if those insiders have been buying or selling.

General Public Ownership

The general public, who are usually individual investors, hold a substantial 56% stake in Rainbow Rare Earths, suggesting it is a fairly popular stock. With this amount of ownership, retail investors can collectively play a role in decisions that affect shareholder returns, such as dividend policies and the appointment of directors. They can also exercise the power to vote on acquisitions or mergers that may not improve profitability.

Private Company Ownership

It seems that Private Companies own 16%, of the Rainbow Rare Earths stock. It might be worth looking deeper into this. If related parties, such as insiders, have an interest in one of these private companies, that should be disclosed in the annual report. Private companies may also have a strategic interest in the company.

Next Steps:

It's always worth thinking about the different groups who own shares in a company. But to understand Rainbow Rare Earths better, we need to consider many other factors. For instance, we've identified 3 warning signs for Rainbow Rare Earths (1 is a bit concerning) that you should be aware of.

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.

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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.