Institutional investors are Illinois Tool Works Inc.'s (NYSE:ITW) biggest bettors and were rewarded after last week's US$3.3b market cap gain

Key Insights

• Institutions' substantial holdings in Illinois Tool Works implies that they have significant influence over the company's share price
• 50% of the business is held by the top 12 shareholders
• Recent purchases by insiders

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Every investor in Illinois Tool Works Inc. (NYSE:ITW) should be aware of the most powerful shareholder groups. And the group that holds the biggest piece of the pie are institutions with 84% 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 US$3.3b in market cap last week. The one-year return on investment is currently 13% and last week's gain would have been more than welcomed.

In the chart below, we zoom in on the different ownership groups of Illinois Tool Works.

See our latest analysis for Illinois Tool Works

What Does The Institutional Ownership Tell Us About Illinois Tool Works?

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.

As you can see, institutional investors have a fair amount of stake in Illinois Tool Works. 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. 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 Illinois Tool Works, (below). Of course, keep in mind that there are other factors to consider, too.

Institutional investors own over 50% of the company, so together than can probably strongly influence board decisions. Illinois Tool Works is not owned by hedge funds. The Vanguard Group, Inc. is currently the largest shareholder, with 9.0% of shares outstanding. Briar Hall Management LLC is the second largest shareholder owning 8.8% of common stock, and State Farm Insurance Companies, Asset Management Arm holds about 7.2% of the company stock.

After doing some more digging, we found that the top 12 have the combined ownership of 50% in the company, suggesting that no single shareholder has significant control over the company.

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 Illinois Tool Works

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.

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.

Our information suggests that Illinois Tool Works Inc. insiders own under 1% of the company. It is a very large company, so it would be surprising to see insiders own a large proportion of the company. Though their holding amounts to less than 1%, we can see that board members collectively own US$247m worth of shares (at current prices). It is always good to see at least some insider ownership, but it might be worth checking if those insiders have been selling.

General Public Ownership

With a 15% ownership, the general public, mostly comprising of individual investors, have some degree of sway over Illinois Tool Works. While this group can't necessarily call the shots, it can certainly have a real influence on how the company is run.

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. Case in point: We've spotted 1 warning sign for Illinois Tool Works you should be aware of.

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.