Institutional owners may ignore Transcat, Inc.'s (NASDAQ:TRNS) recent US$58m market cap decline as longer-term profits stay in the green

By
Simply Wall St
Published
November 28, 2021
NasdaqGM:TRNS
Source: Shutterstock

To get a sense of who is truly in control of Transcat, Inc. (NASDAQ:TRNS), 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 74% ownership. That is, the group stands to benefit the most if the stock rises (or lose the most if there is a downturn).

Institutional investors endured the highest losses after the company's market cap fell by US$58m last week. Still, the 178% one-year gains may have helped mitigate their overall losses. We would assume however, that they would be on the lookout for weakness in the future.

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

View our latest analysis for Transcat

ownership-breakdown
NasdaqGM:TRNS Ownership Breakdown November 29th 2021

What Does The Institutional Ownership Tell Us About Transcat?

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.

Transcat 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. 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 Transcat's historic earnings and revenue below, but keep in mind there's always more to the story.

earnings-and-revenue-growth
NasdaqGM:TRNS Earnings and Revenue Growth November 29th 2021

Institutional investors own over 50% of the company, so together than can probably strongly influence board decisions. Hedge funds don't have many shares in Transcat. Looking at our data, we can see that the largest shareholder is Neuberger Berman BD LLC with 11% of shares outstanding. With 9.0% and 5.9% of the shares outstanding respectively, Wasatch Advisors Inc. and Royce & Associates, LP are the second and third largest shareholders. Additionally, the company's CEO Lee Rudow directly holds 1.7% of the total shares outstanding.

On further inspection, we found that more than half the company's shares are owned by the top 9 shareholders, suggesting that the interests of the larger shareholders are balanced out to an extent by the smaller ones.

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 Transcat

The definition of an insider can differ slightly between different countries, but members of the board of directors always count. Company management run the business, but the CEO will answer to the board, even if he or she is a member of it.

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.

Our most recent data indicates that insiders own some shares in Transcat, Inc.. As individuals, the insiders collectively own US$41m worth of the US$665m company. It is good to see some investment by insiders, but it might be worth checking if those insiders have been buying.

General Public Ownership

With a 20% ownership, the general public, mostly comprising of individual investors, have some degree of sway over Transcat. 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.

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 risks, for instance. Every company has them, and we've spotted 3 warning signs for Transcat you should know about.

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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