Institutional investors may adopt severe steps after Smith-Midland Corporation's (NASDAQ:SMID) latest 11% drop adds to a year 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
• 14% of Smith-Midland is held by insiders

To get a sense of who is truly in control of Smith-Midland Corporation (NASDAQ:SMID), it is important to understand the ownership structure of the business. 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 so it follows that institutional investors was the group most impacted after the company's market cap fell to US$219m last week after a 11% drop in the share price. This set of investors may especially be concerned about the current loss, which adds to a one-year loss of 1.1% 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 Smith-Midland which might hurt individual investors.

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

See 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 can indicate that the company has a certain degree of credibility in the investment community. However, it is best to be wary of relying on the supposed validation that comes with institutional investors. They too, get it wrong sometimes. 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.

Investors should note that institutions actually own more than half the company, so they can collectively wield significant power. We note that hedge funds don't have a meaningful investment in Smith-Midland. Looking at our data, we can see that the largest shareholder is Thompson Davis Asset Management with 33% of shares outstanding. Meanwhile, the second and third largest shareholders, hold 10% and 4.6%, of the shares outstanding, respectively. Furthermore, CEO Ashley Smith is the owner of 3.4% of the company's shares.

To make our study more interesting, we found that the top 4 shareholders control more than half of the company which implies that this group has considerable sway over the company's decision-making.

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.

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 Smith-Midland Corporation. Insiders own US$31m worth of shares in the US$219m company. This may suggest that the founders still own a lot of shares. You can click here to see if they have been buying or selling.

General Public Ownership

The general public, who are usually individual investors, hold a 26% stake in Smith-Midland. While this size of ownership may not be enough to sway a policy decision in their favour, they can still make a collective impact on company policies.

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 Smith-Midland is showing 1 warning sign in our investment analysis , you should know about...

Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of interesting companies.

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.