Institutional investors are J. Front Retailing Co., Ltd.'s (TSE:3086) biggest bettors and were rewarded after last week's JP¥22b market cap gain

Key Insights

• Significantly high institutional ownership implies J. Front Retailing's stock price is sensitive to their trading actions
• The top 20 shareholders own 50% of the company
• Ownership research along with analyst forecasts data help provide a good understanding of opportunities in a stock

To get a sense of who is truly in control of J. Front Retailing Co., Ltd. (TSE:3086), it is important to understand the ownership structure of the business. 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).

And things are looking up for institutional investors after the company gained JP¥22b in market cap last week. One-year return to shareholders is currently 21% and last week’s gain was the icing on the cake.

In the chart below, we zoom in on the different ownership groups of J. Front Retailing.

View our latest analysis for J. Front Retailing

What Does The Institutional Ownership Tell Us About J. Front Retailing?

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 J. Front Retailing 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. 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 J. Front Retailing, (below). Of course, keep in mind that there are other factors to consider, too.

We note that hedge funds don't have a meaningful investment in J. Front Retailing. BlackRock, Inc. is currently the company's largest shareholder with 6.6% of shares outstanding. For context, the second largest shareholder holds about 5.2% of the shares outstanding, followed by an ownership of 4.8% by the third-largest shareholder.

A closer look at our ownership figures suggests that the top 20 shareholders have a combined ownership of 50% implying that no single shareholder has a majority.

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 J. Front Retailing

The definition of an insider can differ slightly between different countries, but members of the board of directors always count. 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.

Most consider insider ownership a positive because it can indicate the board is well aligned with other shareholders. However, on some occasions too much power is concentrated within this group.

Our information suggests that J. Front Retailing Co., Ltd. insiders own under 1% of the company. But they may have an indirect interest through a corporate structure that we haven't picked up on. It's a big company, so even a small proportional interest can create alignment between the board and shareholders. In this case insiders own JP¥521m worth of shares. 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-- including retail investors -- own 47% stake in the company, and hence can't easily be ignored. This size of ownership, while considerable, may not be enough to change company policy if the decision is not in sync with other large shareholders.

Private Company Ownership

It seems that Private Companies own 3.6%, of the J. Front Retailing stock. Private companies may be related parties. Sometimes insiders have an interest in a public company through a holding in a private company, rather than in their own capacity as an individual. While it's hard to draw any broad stroke conclusions, it is worth noting as an area for further research.

Next Steps:

I find it very interesting to look at who exactly owns a company. But to truly gain insight, we need to consider other information, too. Take risks for example - J. Front Retailing has 2 warning signs (and 1 which is a bit unpleasant) we think you should know about.

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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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.