RCI Hospitality Holdings, Inc.'s (NASDAQ:RICK) market cap dropped US$40m last week; individual investors who hold 42% were hit as were institutions

Key Insights

• Significant control over RCI Hospitality Holdings by retail investors implies that the general public has more power to influence management and governance-related decisions
• 50% of the business is held by the top 14 shareholders
• Insiders have bought recently

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To get a sense of who is truly in control of RCI Hospitality Holdings, Inc. (NASDAQ:RICK), it is important to understand the ownership structure of the business. The group holding the most number of shares in the company, around 42% to be precise, is retail investors. Put another way, the group faces the maximum upside potential (or downside risk).

While the holdings of retail investors took a hit after last week’s 15% price drop, institutions with their 39% holdings also suffered.

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

See our latest analysis for RCI Hospitality Holdings

What Does The Institutional Ownership Tell Us About RCI Hospitality Holdings?

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.

We can see that RCI Hospitality Holdings does have institutional investors; and they hold a good portion of the company's stock. 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. 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 RCI Hospitality Holdings, (below). Of course, keep in mind that there are other factors to consider, too.

Our data indicates that hedge funds own 10% of RCI Hospitality Holdings. That catches my attention because hedge funds sometimes try to influence management, or bring about changes that will create near term value for shareholders. Looking at our data, we can see that the largest shareholder is ADW Capital Management LLC with 10% of shares outstanding. In comparison, the second and third largest shareholders hold about 8.1% and 6.7% of the stock. Eric Langan, who is the second-largest shareholder, also happens to hold the title of Chief Executive Officer.

After doing some more digging, we found that the top 14 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. Our information suggests that there isn't any analyst coverage of the stock, so it is probably little known.

Insider Ownership Of RCI Hospitality Holdings

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. 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.

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.

We can see that insiders own shares in RCI Hospitality Holdings, Inc.. As individuals, the insiders collectively own US$21m worth of the US$247m company. This shows at least some alignment. You can click here to see if those insiders have been buying or selling.

General Public Ownership

With a 42% ownership, the general public, mostly comprising of individual investors, have some degree of sway over RCI Hospitality Holdings. 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:

It's always worth thinking about the different groups who own shares in a company. But to understand RCI Hospitality Holdings better, we need to consider many other factors. For example, we've discovered 2 warning signs for RCI Hospitality Holdings that you should be aware of before investing here.

Of course this may not be the best stock to buy. So take a peek at this free free list of interesting companies.

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.