Editas Medicine, Inc.'s (NASDAQ:EDIT) recent 13% pullback adds to one-year year losses, institutional owners may take drastic measures

By
Simply Wall St
Published
May 16, 2022
NasdaqGS:EDIT
Source: Shutterstock

If you want to know who really controls Editas Medicine, Inc. (NASDAQ:EDIT), then you'll have to look at the makeup of its share registry. And the group that holds the biggest piece of the pie are institutions with 65% 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$814m last week after a 13% drop in the share price. The recent loss, which adds to a one-year loss of 64% for stockholders, may not sit well with this group of investors. 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 downtrend continues, institutions may face pressures to sell Editas Medicine, which might have negative implications on individual investors.

In the chart below, we zoom in on the different ownership groups of Editas Medicine.

See our latest analysis for Editas Medicine

ownership-breakdown
NasdaqGS:EDIT Ownership Breakdown May 16th 2022

What Does The Institutional Ownership Tell Us About Editas Medicine?

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 Editas Medicine. This implies the analysts working for those institutions have looked at the stock and they like it. But just like anyone else, they could be wrong. 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 Editas Medicine's historic earnings and revenue below, but keep in mind there's always more to the story.

earnings-and-revenue-growth
NasdaqGS:EDIT Earnings and Revenue Growth May 16th 2022

Since institutional investors own more than half the issued stock, the board will likely have to pay attention to their preferences. Hedge funds don't have many shares in Editas Medicine. The Vanguard Group, Inc. is currently the largest shareholder, with 10% of shares outstanding. For context, the second largest shareholder holds about 9.1% of the shares outstanding, followed by an ownership of 4.8% by the third-largest shareholder.

A deeper look at our ownership data shows that the top 25 shareholders collectively hold less than half of the register, suggesting a large group of small holders where no single shareholder has a majority.

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 are a reasonable number of analysts covering the stock, so it might be useful to find out their aggregate view on the future.

Insider Ownership Of Editas Medicine

The definition of an insider can differ slightly between different countries, but members of the board of directors always count. Company management run the business, but the CEO will answer to the board, even if he or she is a member of it.

Most consider insider ownership a positive because it can indicate the board is well aligned with other shareholders. However, on some occasions too much power is concentrated within this group.

Our most recent data indicates that insiders own less than 1% of Editas Medicine, Inc.. It appears that the board holds about US$2.9m worth of stock. This compares to a market capitalization of US$814m. Many investors in smaller companies prefer to see the board more heavily invested. You can click here to see if those insiders have been buying or selling.

General Public Ownership

The general public-- including retail investors -- own 35% stake in the company, and hence can't easily be ignored. 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. Like risks, for instance. Every company has them, and we've spotted 4 warning signs for Editas Medicine (of which 1 is potentially serious!) you should know about.

But ultimately it is the future, not the past, that will determine how well the owners of this business will do. Therefore we think it advisable to take a look at this free report showing whether analysts are predicting a brighter 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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