Painful week for retail investors invested in Erasca, Inc. (NASDAQ:ERAS) after 6.1% drop, institutions also suffered losses

Key Insights

• The considerable ownership by retail investors in Erasca indicates that they collectively have a greater say in management and business strategy
• 50% of the business is held by the top 15 shareholders
• Insiders have bought recently

If you want to know who really controls Erasca, Inc. (NASDAQ:ERAS), 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 retail investors with 39% ownership. In other words, the group stands to gain the most (or lose the most) from their investment into the company.

While institutions who own 27% came under pressure after market cap dropped to US$859m last week,retail investors took the most losses.

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

Check out our latest analysis for Erasca

What Does The Institutional Ownership Tell Us About Erasca?

Many institutions measure their performance against an index that approximates the local market. So they usually pay more attention to companies that are included in major indices.

As you can see, institutional investors have a fair amount of stake in Erasca. 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 Erasca's historic earnings and revenue below, but keep in mind there's always more to the story.

It would appear that 5.1% of Erasca shares are controlled by hedge funds. 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. Looking at our data, we can see that the largest shareholder is the CEO Jonathan Lim with 12% of shares outstanding. The second and third largest shareholders are Frazier Life Sciences Management, LP and VR Adviser, LLC, with an equal amount of shares to their name at 5.9%.

A closer look at our ownership figures suggests that the top 15 shareholders have a combined ownership of 50% implying that no single shareholder has a majority.

Researching institutional ownership is a good way to gauge and filter a stock's expected performance. The same can be achieved by studying analyst sentiments. 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 Erasca

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.

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 most recent data indicates that insiders own a reasonable proportion of Erasca, Inc.. It has a market capitalization of just US$859m, and insiders have US$107m 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

With a 39% ownership, the general public, mostly comprising of individual investors, have some degree of sway over Erasca. While this group can't necessarily call the shots, it can certainly have a real influence on how the company is run.

Private Equity Ownership

With a stake of 12%, private equity firms could influence the Erasca 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.

Public Company Ownership

It appears to us that public companies own 4.5% of Erasca. We can't be certain but it is quite possible this is a strategic stake. The businesses may be similar, or work together.

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 - Erasca has 5 warning signs (and 3 which are concerning) we think you should know about.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com