Institutional investors in Eledon Pharmaceuticals, Inc. (NASDAQ:ELDN) see US$25m decrease in market cap last week, although long-term gains have benefitted them.

Key Insights

• Significantly high institutional ownership implies Eledon Pharmaceuticals' stock price is sensitive to their trading actions
• The top 13 shareholders own 51% of the company
• Analyst forecasts along with ownership data serve to give a strong idea about prospects for a business

Every investor in Eledon Pharmaceuticals, Inc. (NASDAQ:ELDN) should be aware of the most powerful shareholder groups. With 47% stake, institutions 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.

Institutional investors was the group most impacted after the company's market cap fell to US$226m last week. However, the 108% one-year return to shareholders might have softened the blow. We would assume however, that they would be on the lookout for weakness in the future.

In the chart below, we zoom in on the different ownership groups of Eledon Pharmaceuticals.

Check out our latest analysis for Eledon Pharmaceuticals

What Does The Institutional Ownership Tell Us About Eledon Pharmaceuticals?

Institutional investors commonly compare their own returns to the returns of a commonly followed index. So they generally do consider buying larger companies that are included in the relevant benchmark index.

Eledon Pharmaceuticals already has institutions on the share registry. Indeed, they own a respectable stake in the company. 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. 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 Eledon Pharmaceuticals' historic earnings and revenue below, but keep in mind there's always more to the story.

Our data indicates that hedge funds own 16% of Eledon Pharmaceuticals. That catches my attention because hedge funds sometimes try to influence management, or bring about changes that will create near term value for shareholders. Our data shows that BVF Partners L.P. is the largest shareholder with 11% of shares outstanding. In comparison, the second and third largest shareholders hold about 6.0% and 5.3% of the stock.

After doing some more digging, we found that the top 13 have the combined ownership of 51% 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. There are plenty of analysts covering the stock, so it might be worth seeing what they are forecasting, too.

Insider Ownership Of Eledon Pharmaceuticals

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.

Our data suggests that insiders own under 1% of Eledon Pharmaceuticals, Inc. in their own names. It seems the board members have no more than US$98k worth of shares in the US$226m company. Many tend to prefer to see a board with bigger shareholdings. A good next step might be to take a look at this free summary of insider buying and selling.

General Public Ownership

The general public-- including retail investors -- own 30% 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.

Private Equity Ownership

With a stake of 6.0%, private equity firms could influence the Eledon Pharmaceuticals board. Some might like this, because private equity are sometimes activists who hold management accountable. But other times, private equity is selling out, having taking the company public.

Next Steps:

It's always worth thinking about the different groups who own shares in a company. But to understand Eledon Pharmaceuticals better, we need to consider many other factors. Take risks for example - Eledon Pharmaceuticals has 4 warning signs (and 3 which are a bit unpleasant) we think 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.