Institutional owners may ignore FreightCar America, Inc.'s (NASDAQ:RAIL) recent US$32m market cap decline as longer-term profits stay in the green

Key Insights

• Significantly high institutional ownership implies FreightCar America's stock price is sensitive to their trading actions
• 50% of the business is held by the top 15 shareholders
• Insider ownership in FreightCar America is 14%

If you want to know who really controls FreightCar America, Inc. (NASDAQ:RAIL), then you'll have to look at the makeup of its share registry. With 43% stake, institutions possess the maximum shares in the company. Put another way, the group faces the maximum upside potential (or downside risk).

No shareholder likes losing money on their investments, especially institutional investors who saw their holdings drop 21% in value last week. Still, the 99% one-year gains may have helped mitigate their overall losses. They should, however, be mindful of further losses in the future.

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

View our latest analysis for FreightCar America

What Does The Institutional Ownership Tell Us About FreightCar America?

Institutional investors commonly compare their own returns to the returns of a commonly followed index. So they generally do consider buying larger companies that are included in the relevant benchmark index.

As you can see, institutional investors have a fair amount of stake in FreightCar America. 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. 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 FreightCar America's earnings history below. Of course, the future is what really matters.

Hedge funds don't have many shares in FreightCar America. Fabricaciones y Servicios de México, S.A. de C.V. is currently the company's largest shareholder with 10% of shares outstanding. For context, the second largest shareholder holds about 8.4% of the shares outstanding, followed by an ownership of 8.2% by the third-largest shareholder. Furthermore, CEO Nicholas Randall is the owner of 1.0% of the company's shares.

Looking at the shareholder registry, we can see that 50% of the ownership is controlled by the top 15 shareholders, meaning that no single shareholder has a majority interest in the ownership.

Researching institutional ownership is a good way to gauge and filter a stock's expected performance. The same can be achieved by studying analyst sentiments. 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 FreightCar America

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. 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 FreightCar America, Inc.. Insiders own US$18m worth of shares in the US$123m company. This may suggest that the founders still own a lot of shares. You can click here to see if they have been buying or selling.

General Public Ownership

The general public-- including retail investors -- own 31% 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

We can see that Private Companies own 12%, of the shares on issue. 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:

While it is well worth considering the different groups that own a company, there are other factors that are even more important. Consider for instance, the ever-present spectre of investment risk. We've identified 1 warning sign with FreightCar America , and understanding them should be part of your investment process.

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.