In the wake of AppHarvest, Inc.'s (NASDAQ:APPH) latest US$47m market cap drop, institutional owners may be forced to take severe actions

By
Simply Wall St
Published
January 22, 2022
NasdaqGS:APPH
Source: Shutterstock

If you want to know who really controls AppHarvest, Inc. (NASDAQ:APPH), then you'll have to look at the makeup of its share registry. We can see that institutions own the lion's share in the company with 41% ownership. That is, the group stands to benefit the most if the stock rises (or lose the most if there is a downturn).

And institutional investors saw their holdings value drop by 12% last week. This set of investors may especially be concerned about the current loss, which adds to a one-year loss of 86% for 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. As a result, if the decline continues, institutional investors may be pressured to sell AppHarvest which might hurt individual investors.

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

Check out our latest analysis for AppHarvest

ownership-breakdown
NasdaqGS:APPH Ownership Breakdown January 22nd 2022

What Does The Institutional Ownership Tell Us About AppHarvest?

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.

AppHarvest already has institutions on the share registry. Indeed, they own a respectable stake in the company. 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 AppHarvest's historic earnings and revenue below, but keep in mind there's always more to the story.

earnings-and-revenue-growth
NasdaqGS:APPH Earnings and Revenue Growth January 22nd 2022

It would appear that 8.7% of AppHarvest shares are controlled by hedge funds. That's interesting, because hedge funds can be quite active and activist. Many look for medium term catalysts that will drive the share price higher. The company's CEO Jonathan Webb is the largest shareholder with 18% of shares outstanding. Meanwhile, the second and third largest shareholders, hold 8.7% and 5.6%, of the shares outstanding, respectively.

On further inspection, we found that more than half the company's shares are owned by the top 8 shareholders, suggesting that the interests of the larger shareholders are balanced out to an extent by the smaller ones.

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 is some analyst coverage of the stock, but it could still become more well known, with time.

Insider Ownership Of AppHarvest

While the precise definition of an insider can be subjective, almost everyone considers board members to be insiders. 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.

Our information suggests that insiders maintain a significant holding in AppHarvest, Inc.. It has a market capitalization of just US$358m, and insiders have US$75m worth of shares in their own names. It is great to see insiders so invested in the business. It might be worth checking if those insiders have been buying recently.

General Public Ownership

The general public-- including retail investors -- own 24% 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.

Private Equity Ownership

With an ownership of 5.3%, private equity firms are in a position to play a role in shaping corporate strategy with a focus on value creation. Sometimes we see private equity stick around for the long term, but generally speaking they have a shorter investment horizon and -- as the name suggests -- don't invest in public companies much. After some time they may look to sell and redeploy capital elsewhere.

Next Steps:

It's always worth thinking about the different groups who own shares in a company. But to understand AppHarvest better, we need to consider many other factors. For example, we've discovered 4 warning signs for AppHarvest (2 don't sit too well with us!) that you should be aware of before investing here.

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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