Institutional owners may consider drastic measures as Smith & Wesson Brands, Inc.'s (NASDAQ:SWBI) recent US$131m drop adds to long-term losses

Key Insights

• Significantly high institutional ownership implies Smith & Wesson Brands' stock price is sensitive to their trading actions
• A total of 19 investors have a majority stake in the company with 50% ownership
• Analyst forecasts along with ownership data serve to give a strong idea about prospects for a business

A look at the shareholders of Smith & Wesson Brands, Inc. (NASDAQ:SWBI) can tell us which group is most powerful. We can see that institutions own the lion's share in the company with 54% ownership. In other words, the group stands to gain the most (or lose the most) from their investment into the company.

And so it follows that institutional investors was the group most impacted after the company's market cap fell to US$600m last week after a 20% drop in the share price. This set of investors may especially be concerned about the current loss, which adds to a one-year loss of 11% for shareholders. Also referred to as "smart money", institutions have a lot of sway over how a stock's price moves. Hence, if weakness in Smith & Wesson Brands' share price continues, institutional investors may feel compelled to sell the stock, which might not be ideal for individual investors.

Let's take a closer look to see what the different types of shareholders can tell us about Smith & Wesson Brands.

See our latest analysis for Smith & Wesson Brands

What Does The Institutional Ownership Tell Us About Smith & Wesson Brands?

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 Smith & Wesson Brands. 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 Smith & Wesson Brands' historic earnings and revenue below, but keep in mind there's always more to the story.

Institutional investors own over 50% of the company, so together than can probably strongly influence board decisions. Our data indicates that hedge funds own 6.4% of Smith & Wesson Brands. That catches my attention because hedge funds sometimes try to influence management, or bring about changes that will create near term value for shareholders. BlackRock, Inc. is currently the largest shareholder, with 9.5% of shares outstanding. With 7.9% and 6.6% of the shares outstanding respectively, The Vanguard Group, Inc. and Dimensional Fund Advisors LP are the second and third largest shareholders.

A closer look at our ownership figures suggests that the top 19 shareholders have a combined ownership of 50% implying that no single shareholder has a majority.

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. Quite a few analysts cover the stock, so you could look into forecast growth quite easily.

Insider Ownership Of Smith & Wesson Brands

While the precise definition of an insider can be subjective, almost everyone considers board members to be insiders. 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.

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.

Shareholders would probably be interested to learn that insiders own shares in Smith & Wesson Brands, Inc.. It has a market capitalization of just US$600m, and insiders have US$7.8m worth of shares, in their own names. 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 38% ownership, the general public, mostly comprising of individual investors, have some degree of sway over Smith & Wesson Brands. 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. Take risks for example - Smith & Wesson Brands has 2 warning signs (and 1 which is significant) we think 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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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.