Institutional investors are The Honest Company, Inc.'s (NASDAQ:HNST) biggest bettors and were rewarded after last week's US$38m market cap gain

Key Insights

• Given the large stake in the stock by institutions, Honest Company's stock price might be vulnerable to their trading decisions
• The top 14 shareholders own 50% of the company
• Insiders have sold recently

A look at the shareholders of The Honest Company, Inc. (NASDAQ:HNST) can tell us which group is most powerful. And the group that holds the biggest piece of the pie are institutions with 32% ownership. Put another way, the group faces the maximum upside potential (or downside risk).

And things are looking up for institutional investors after the company gained US$38m in market cap last week. One-year return to shareholders is currently 74% and last week’s gain was the icing on the cake.

Let's delve deeper into each type of owner of Honest Company, beginning with the chart below.

Check out our latest analysis for Honest Company

What Does The Institutional Ownership Tell Us About Honest Company?

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.

As you can see, institutional investors have a fair amount of stake in Honest 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 Honest Company's historic earnings and revenue below, but keep in mind there's always more to the story.

Our data indicates that hedge funds own 7.6% of Honest Company. That worth noting, since hedge funds are often quite active investors, who may try to influence management. Many want to see value creation (and a higher share price) in the short term or medium term. Our data shows that L Catterton Partners is the largest shareholder with 12% of shares outstanding. With 7.6% and 7.1% of the shares outstanding respectively, Portolan Capital Management, LLC and Institutional Venture Partners are the second and third largest shareholders.

A closer look at our ownership figures suggests that the top 14 shareholders have a combined ownership of 50% implying that no single shareholder has a majority.

While it makes sense to study institutional ownership data for a company, it also makes sense to study analyst sentiments to know which way the wind is blowing. There are plenty of analysts covering the stock, so it might be worth seeing what they are forecasting, too.

Insider Ownership Of Honest Company

While the precise definition of an insider can be subjective, almost everyone considers board members to be insiders. Management ultimately answers to the board. However, it is not uncommon for managers to be executive board members, especially if they are a founder or the CEO.

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.

We can see that insiders own shares in The Honest Company, Inc.. In their own names, insiders own US$25m worth of stock in the US$258m company. It is good to see some investment by insiders, but it might be worth checking if those insiders have been buying.

General Public Ownership

The general public, who are usually individual investors, hold a 31% stake in Honest Company. 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.

Private Equity Ownership

With a stake of 19%, private equity firms could influence the Honest Company board. 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:

I find it very interesting to look at who exactly owns a company. But to truly gain insight, we need to consider other information, too. Be aware that Honest Company is showing 2 warning signs in our investment analysis , 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com