Hedge funds owners may consider drastic measures as Smith-Midland Corporation's (NASDAQ:SMID) recent US$25m drop adds to long-term losses

Key Insights

• Given the large stake in the stock by institutions, Smith-Midland's stock price might be vulnerable to their trading decisions
• The top 4 shareholders own 53% of the company
• Insiders have been selling lately

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Every investor in Smith-Midland Corporation (NASDAQ:SMID) should be aware of the most powerful shareholder groups. With 35% stake, hedge funds possess the maximum shares in the company. In other words, the group stands to gain the most (or lose the most) from their investment into the company.

As a result, hedge funds investors endured the highest losses last week after market cap fell by US$25m. This set of investors may especially be concerned about the current loss, which adds to a one-year loss of 20% for shareholders. Hedge funds typically use aggressive strategies that focus on short-term gains. And given they have significant interest in Smith-Midland, they have a lot of power, and if the company's performance doesn't improve, it could lead to them influencing management decisions that aren't in line with long-term objectives.

In the chart below, we zoom in on the different ownership groups of Smith-Midland.

View our latest analysis for Smith-Midland

What Does The Institutional Ownership Tell Us About Smith-Midland?

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 Smith-Midland. 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 Smith-Midland's earnings history below. Of course, the future is what really matters.

Our data indicates that hedge funds own 35% of Smith-Midland. That catches my attention because hedge funds sometimes try to influence management, or bring about changes that will create near term value for shareholders. The company's largest shareholder is Thompson Davis Asset Management, with ownership of 35%. With 10% and 4.2% of the shares outstanding respectively, Rodney Smith and The Vanguard Group, Inc. are the second and third largest shareholders. Furthermore, CEO Ashley Smith is the owner of 3.3% of the company's shares.

Our research also brought to light the fact that roughly 53% of the company is controlled by the top 4 shareholders suggesting that these owners wield significant influence on the business.

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. Our information suggests that there isn't any analyst coverage of the stock, so it is probably little known.

Insider Ownership Of Smith-Midland

The definition of an insider can differ slightly between different countries, but members of the board of directors always count. 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.

Our most recent data indicates that insiders own a reasonable proportion of Smith-Midland Corporation. It has a market capitalization of just US$187m, and insiders have US$26m 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, who are usually individual investors, hold a 28% stake in Smith-Midland. 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. Be aware that Smith-Midland is showing 1 warning sign in our investment analysis , you should know about...

Of course this may not be the best stock to buy. Therefore, you may wish to see our free collection of interesting prospects boasting favorable financials.

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.