In the wake of AvidXchange Holdings, Inc.'s (NASDAQ:AVDX) latest US$51m market cap drop, institutional owners may be forced to take severe actions

Key Insights

• Given the large stake in the stock by institutions, AvidXchange Holdings' stock price might be vulnerable to their trading decisions
• A total of 13 investors have a majority stake in the company with 52% ownership
• Insiders have sold recently

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If you want to know who really controls AvidXchange Holdings, Inc. (NASDAQ:AVDX), then you'll have to look at the makeup of its share registry. The group holding the most number of shares in the company, around 78% to be precise, is institutions. In other words, the group stands to gain the most (or lose the most) from their investment into the company.

As a result, institutional investors endured the highest losses last week after market cap fell by US$51m. Needless to say, the recent loss which further adds to the one-year loss to shareholders of 36% might not go down well especially with this category of shareholders. Institutions or "liquidity providers" control large sums of money and therefore, these types of investors usually have a lot of influence over stock price movements. Hence, if weakness in AvidXchange Holdings' share price continues, institutional investors may feel compelled to sell the stock, which might not be ideal for individual investors.

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

Check out our latest analysis for AvidXchange Holdings

What Does The Institutional Ownership Tell Us About AvidXchange Holdings?

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.

We can see that AvidXchange 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. 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 AvidXchange Holdings' historic earnings and revenue below, but keep in mind there's always more to the story.

Since institutional investors own more than half the issued stock, the board will likely have to pay attention to their preferences. Hedge funds don't have many shares in AvidXchange Holdings. Our data shows that The Vanguard Group, Inc. is the largest shareholder with 8.9% of shares outstanding. In comparison, the second and third largest shareholders hold about 7.3% and 6.9% of the stock. Michael Praeger, who is the third-largest shareholder, also happens to hold the title of Chairman of the Board.

A closer look at our ownership figures suggests that the top 13 shareholders have a combined ownership of 52% implying that no single shareholder has a majority.

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 AvidXchange 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. 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.

Shareholders would probably be interested to learn that insiders own shares in AvidXchange Holdings, Inc.. This is a big company, so it is good to see this level of alignment. Insiders own US$135m worth of shares (at current prices). If you would like to explore the question of insider alignment, you can click here to see if insiders have been buying or selling.

General Public Ownership

With a 13% ownership, the general public, mostly comprising of individual investors, have some degree of sway over AvidXchange 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:

While it is well worth considering the different groups that own a company, there are other factors that are even more important. Be aware that AvidXchange Holdings is showing 1 warning sign in our investment analysis , you should know about...

But ultimately it is the future, not the past, that will determine how well the owners of this business will do. Therefore we think it advisable to take a look at this free report showing whether analysts are predicting a brighter future.

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.