Institutional investors have a lot riding on The Honest Company, Inc. (NASDAQ:HNST) with 60% ownership

Key Insights

• Significantly high institutional ownership implies Honest Company's stock price is sensitive to their trading actions
• The top 20 shareholders own 50% of the company
• Insiders have been selling lately

Our free stock report includes 1 warning sign investors should be aware of before investing in Honest Company. Read for free now.

Every investor in The Honest Company, Inc. (NASDAQ:HNST) should be aware of the most powerful shareholder groups. And the group that holds the biggest piece of the pie are institutions with 60% ownership. In other words, the group stands to gain the most (or lose the most) from their investment into the company.

And as as result, institutional investors reaped the most rewards after the company's stock price gained 19% last week. One-year return to shareholders is currently 74% and last week’s gain was the icing on the cake.

In the chart below, we zoom in on the different ownership groups of Honest Company.

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. If multiple institutions change their view on a stock at the same time, you could see the share price drop fast. It's therefore worth looking at Honest Company's earnings history below. Of course, the future is what really matters.

Investors should note that institutions actually own more than half the company, so they can collectively wield significant power. It looks like hedge funds own 5.0% of Honest Company shares. 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. BlackRock, Inc. is currently the largest shareholder, with 5.2% of shares outstanding. For context, the second largest shareholder holds about 5.0% of the shares outstanding, followed by an ownership of 4.9% by the third-largest shareholder. Jessica Warren, who is the third-largest shareholder, also happens to hold the title of Member of the Board of Directors. In addition, we found that Carla Vernon, the CEO has 0.7% of the shares allocated to their name.

After doing some more digging, we found that the top 20 have the combined ownership of 50% in the company, suggesting that no single shareholder has significant control over the company.

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. Quite a few analysts cover the stock, so you could look into forecast growth quite easily.

Insider Ownership Of Honest Company

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. The company management answer to the board and the latter should represent the interests of shareholders. Notably, sometimes top-level managers are on the board themselves.

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.

Shareholders would probably be interested to learn that insiders own shares in The Honest Company, Inc.. In their own names, insiders own US$46m worth of stock in the US$556m 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

With a 27% ownership, the general public, mostly comprising of individual investors, have some degree of sway over 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.

Next Steps:

While it is well worth considering the different groups that own a company, there are other factors that are even more important. Take risks for example - Honest Company has 1 warning sign we think you should be aware of.

Ultimately the future is most important. You can access this free report on analyst forecasts for the company.

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.