In the wake of Sopheon plc's (LON:SPE) latest UK£8.4m market cap drop, institutional owners may be forced to take severe actions

By
Simply Wall St
Published
February 24, 2022
AIM:SPE
Source: Shutterstock

A look at the shareholders of Sopheon plc (LON:SPE) can tell us which group is most powerful. And the group that holds the biggest piece of the pie are institutions with 57% ownership. In other words, the group stands to gain the most (or lose the most) from their investment into the company.

And institutional investors saw their holdings value drop by 10% last week. The recent loss, which adds to a one-year loss of 27% for stockholders, may not sit well with this group of investors. Often called “market makers”, institutions wield significant power in influencing the price dynamics of any stock. Hence, if weakness in Sopheon's share price continues, institutional investors may feel compelled to sell the stock, which might not be ideal for individual investors.

In the chart below, we zoom in on the different ownership groups of Sopheon.

Check out our latest analysis for Sopheon

ownership-breakdown
AIM:SPE Ownership Breakdown February 24th 2022

What Does The Institutional Ownership Tell Us About Sopheon?

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 Sopheon does have institutional investors; and they hold a good portion of the company's stock. 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 Sopheon's historic earnings and revenue below, but keep in mind there's always more to the story.

earnings-and-revenue-growth
AIM:SPE Earnings and Revenue Growth February 24th 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 Sopheon. Looking at our data, we can see that the largest shareholder is Barry Mence with 18% of shares outstanding. In comparison, the second and third largest shareholders hold about 9.8% and 8.4% of the stock.

We also observed that the top 6 shareholders account for more than half of the share register, with a few smaller shareholders to balance the interests of the larger ones to a certain extent.

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. While there is some analyst coverage, the company is probably not widely covered. So it could gain more attention, down the track.

Insider Ownership Of Sopheon

While the precise definition of an insider can be subjective, almost everyone considers board members to be insiders. Company management run the business, but the CEO will answer to the board, even if he or she is a member of it.

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.

It seems insiders own a significant proportion of Sopheon plc. Insiders have a UK£17m stake in this UK£78m business. It is great to see insiders so invested in the business. It might be worth checking if those insiders have been buying recently.

General Public Ownership

The general public-- including retail investors -- own 21% stake in the company, and hence can't easily be ignored. 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 Sopheon better, we need to consider many other factors. For instance, we've identified 3 warning signs for Sopheon (1 makes us a bit uncomfortable) that you should be aware of.

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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