In the wake of First Foundation Inc.'s (NYSE:FFWM) latest US$115m market cap drop, institutional owners may be forced to take severe actions

Key Insights

• Given the large stake in the stock by institutions, First Foundation's stock price might be vulnerable to their trading decisions
• The top 10 shareholders own 51% of the company
• Analyst forecasts along with ownership data serve to give a strong idea about prospects for a business

Every investor in First Foundation Inc. (NYSE:FFWM) should be aware of the most powerful shareholder groups. And the group that holds the biggest piece of the pie are institutions with 60% ownership. That is, the group stands to benefit the most if the stock rises (or lose the most if there is a downturn).

And institutional investors saw their holdings value drop by 19% last week. Needless to say, the recent loss which further adds to the one-year loss to shareholders of 36% 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 First Foundation which might hurt individual investors.

Let's take a closer look to see what the different types of shareholders can tell us about First Foundation.

View our latest analysis for First Foundation

What Does The Institutional Ownership Tell Us About First Foundation?

Many institutions measure their performance against an index that approximates the local market. So they usually pay more attention to companies that are included in major indices.

First Foundation already has institutions on the share registry. Indeed, they own a respectable stake in the company. This suggests some credibility amongst professional investors. But we can't rely on that fact alone since institutions make bad investments sometimes, just like everyone does. If multiple institutions change their view on a stock at the same time, you could see the share price drop fast. It's therefore worth looking at First Foundation's earnings history below. Of course, the future is what really matters.

Institutional investors own over 50% of the company, so together than can probably strongly influence board decisions. It would appear that 18% of First Foundation shares are controlled by hedge funds. 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. Looking at our data, we can see that the largest shareholder is Canyon Capital Advisors LLC with 9.9% of shares outstanding. Meanwhile, the second and third largest shareholders, hold 8.2% and 7.4%, of the shares outstanding, respectively.

We did some more digging and found that 10 of the top shareholders account for roughly 51% of the register, implying that along with larger shareholders, there are a few smaller shareholders, thereby balancing out each others interests somewhat.

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 First Foundation

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.

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 most recent data indicates that insiders own some shares in First Foundation Inc.. As individuals, the insiders collectively own US$30m worth of the US$511m company. This shows at least some alignment. 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 16% stake in First Foundation. 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. For example, we've discovered 1 warning sign for First Foundation that you should be aware of before investing here.

But ultimately it is the future, not the past, that will determine how well the owners of this business will do. Therefore we think it advisable to take a look at this free report showing whether analysts are predicting a brighter 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.

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.