Stock Analysis

With 84% ownership of the shares, Discover Financial Services (NYSE:DFS) is heavily dominated by institutional owners

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NYSE:DFS
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A look at the shareholders of Discover Financial Services (NYSE:DFS) can tell us which group is most powerful. The group holding the most number of shares in the company, around 84% 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.

Since institutional have access to huge amounts of capital, their market moves tend to receive a lot of scrutiny by retail or individual investors. Therefore, a good portion of institutional money invested in the company is usually a huge vote of confidence on its future.

Let's delve deeper into each type of owner of Discover Financial Services, beginning with the chart below.

View our latest analysis for Discover Financial Services

ownership-breakdown
NYSE:DFS Ownership Breakdown November 22nd 2022

What Does The Institutional Ownership Tell Us About Discover Financial Services?

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 Discover Financial Services. 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 Discover Financial Services' historic earnings and revenue below, but keep in mind there's always more to the story.

earnings-and-revenue-growth
NYSE:DFS Earnings and Revenue Growth November 22nd 2022

Since institutional investors own more than half the issued stock, the board will likely have to pay attention to their preferences. We note that hedge funds don't have a meaningful investment in Discover Financial Services. Our data shows that The Vanguard Group, Inc. is the largest shareholder with 13% of shares outstanding. With 8.8% and 7.4% of the shares outstanding respectively, Capital Research and Management Company and BlackRock, Inc. are the second and third largest shareholders.

After doing some more digging, we found that the top 17 have the combined ownership of 51% in the company, suggesting that no single shareholder has significant control over the company.

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. There are plenty of analysts covering the stock, so it might be worth seeing what they are forecasting, too.

Insider Ownership Of Discover Financial Services

The definition of an insider can differ slightly between different countries, but members of the board of directors always count. Company management run the business, but the CEO will answer to the board, even if he or she is a member of it.

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 most recent data indicates that insiders own less than 1% of Discover Financial Services. As it is a large company, we'd only expect insiders to own a small percentage of it. But it's worth noting that they own US$144m worth of shares. It is good to see board members owning shares, but it might be worth checking if those insiders have been buying.

General Public Ownership

The general public-- including retail investors -- own 15% stake in the company, and hence can't easily be ignored. While this group can't necessarily call the shots, it can certainly have a real influence on how the company is run.

Next Steps:

It's always worth thinking about the different groups who own shares in a company. But to understand Discover Financial Services better, we need to consider many other factors. For instance, we've identified 2 warning signs for Discover Financial Services (1 can't be ignored) that you should be aware of.

If you are like me, you may want to think about whether this company will grow or shrink. Luckily, you can check this free report showing analyst forecasts for its 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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