If you want to know who really controls NexPoint Real Estate Finance, Inc. (NYSE:NREF), then you'll have to look at the makeup of its share registry. Large companies usually have institutions as shareholders, and we usually see insiders owning shares in smaller companies. I quite like to see at least a little bit of insider ownership. As Charlie Munger said 'Show me the incentive and I will show you the outcome.
With a market capitalization of US$361m, NexPoint Real Estate Finance is a small cap stock, so it might not be well known by many institutional investors. In the chart below, we can see that institutions own shares in the company. We can zoom in on the different ownership groups, to learn more about NexPoint Real Estate Finance.
What Does The Institutional Ownership Tell Us About NexPoint Real Estate Finance?
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.
NexPoint Real Estate Finance already has institutions on the share registry. Indeed, they own a respectable stake in the company. This implies the analysts working for those institutions have looked at the stock and they like it. But just like anyone else, they could be wrong. 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 NexPoint Real Estate Finance's 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. NexPoint Real Estate Finance is not owned by hedge funds. Barclays PLC Private Banking & Investment Banking Investment is currently the company's largest shareholder with 7.5% of shares outstanding. With 6.5% and 5.0% of the shares outstanding respectively, Kennedy Capital Management, Inc. and GEM Realty Advisors, LLC are the second and third largest shareholders. Additionally, the company's CEO James Dondero directly holds 3.0% of the total shares outstanding.
A closer look at our ownership figures suggests that the top 17 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. While there is some analyst coverage, the company is probably not widely covered. So it could gain more attention, down the track.
Insider Ownership Of NexPoint Real Estate Finance
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.
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 NexPoint Real Estate Finance, Inc.. In their own names, insiders own US$22m worth of stock in the US$361m company. Some would say this shows alignment of interests between shareholders and the board. But it might be worth checking if those insiders have been selling.
General Public Ownership
With a 43% ownership, the general public have some degree of sway over NexPoint Real Estate Finance. This size of ownership, while considerable, may not be enough to change company policy if the decision is not in sync with other large shareholders.
While it is well worth considering the different groups that own a company, there are other factors that are even more important. To that end, you should learn about the 3 warning signs we've spotted with NexPoint Real Estate Finance (including 2 which shouldn't be ignored) .
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.
If you decide to trade NexPoint Real Estate Finance, use the lowest-cost* platform that is rated #1 Overall by Barron’s, Interactive Brokers. Trade stocks, options, futures, forex, bonds and funds on 135 markets, all from a single integrated account.
This article by Simply Wall St is general in nature. 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.
*Interactive Brokers Rated Lowest Cost Broker by StockBrokers.com Annual Online Review 2020
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.