Institutional owners may consider drastic measures as Arcos Dorados Holdings Inc.'s (NYSE:ARCO) recent US$72m drop adds to long-term losses

Key Insights

• Significantly high institutional ownership implies Arcos Dorados Holdings' stock price is sensitive to their trading actions
• 53% of the business is held by the top 4 shareholders
• 41% of Arcos Dorados Holdings is held by insiders

To get a sense of who is truly in control of Arcos Dorados Holdings Inc. (NYSE:ARCO), it is important to understand the ownership structure of the business. And the group that holds the biggest piece of the pie are institutions with 43% ownership. Put another way, the group faces the maximum upside potential (or downside risk).

And so it follows that institutional investors was the group most impacted after the company's market cap fell to US$1.6b last week after a 4.4% drop in the share price. The recent loss, which adds to a one-year loss of 40% for stockholders, may not sit well with this group of investors. Often called “market movers", institutions wield significant power in influencing the price dynamics of any stock. Hence, if weakness in Arcos Dorados Holdings' share price continues, institutional investors may feel compelled to sell the stock, which might not be ideal for individual investors.

Let's delve deeper into each type of owner of Arcos Dorados Holdings, beginning with the chart below.

View our latest analysis for Arcos Dorados Holdings

What Does The Institutional Ownership Tell Us About Arcos Dorados Holdings?

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

Arcos Dorados Holdings is not owned by hedge funds. From our data, we infer that the largest shareholder is Woods Staton (who also holds the title of Top Key Executive) with 38% of shares outstanding. Its usually considered a good sign when insiders own a significant number of shares in the company, and in this case, we're glad to see a company insider play the role of a key stakeholder. Meanwhile, the second and third largest shareholders, hold 7.0% and 4.6%, of the shares outstanding, respectively.

Our research also brought to light the fact that roughly 53% of the company is controlled by the top 4 shareholders suggesting that these owners wield significant influence on the business.

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 Arcos Dorados 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. 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.

It seems insiders own a significant proportion of Arcos Dorados Holdings Inc.. It has a market capitalization of just US$1.6b, and insiders have US$645m worth of shares in their own names. That's quite significant. It is good to see this level of investment. You can check here to see if those insiders have been buying recently.

General Public Ownership

With a 16% ownership, the general public, mostly comprising of individual investors, have some degree of sway over Arcos Dorados Holdings. While this group can't necessarily call the shots, it can certainly have a real influence on how the company is run.

Next Steps:

While it is well worth considering the different groups that own a company, there are other factors that are even more important. Take risks for example - Arcos Dorados Holdings has 3 warning signs (and 1 which is a bit concerning) 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.