Institutional owners may take dramatic actions as Fate Therapeutics, Inc.'s (NASDAQ:FATE) recent 20% drop adds to one-year losses

Key Insights

• Institutions' substantial holdings in Fate Therapeutics implies that they have significant influence over the company's share price
• 51% of the business is held by the top 9 shareholders
• Analyst forecasts along with ownership data serve to give a strong idea about prospects for a business

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If you want to know who really controls Fate Therapeutics, Inc. (NASDAQ:FATE), then you'll have to look at the makeup of its share registry. With 67% stake, institutions possess the maximum shares in the company. Put another way, the group faces the maximum upside potential (or downside risk).

As a result, institutional investors endured the highest losses last week after market cap fell by US$37m. The recent loss, which adds to a one-year loss of 65% for stockholders, may not sit well with this group of investors. Also referred to as "smart money", institutions have a lot of sway over how a stock's price moves. As a result, if the downtrend continues, institutions may face pressures to sell Fate Therapeutics, which might have negative implications on individual investors.

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

View our latest analysis for Fate Therapeutics

What Does The Institutional Ownership Tell Us About Fate Therapeutics?

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.

Fate Therapeutics 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. 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 Fate Therapeutics' earnings history below. Of course, the future is what really matters.

Since institutional investors own more than half the issued stock, the board will likely have to pay attention to their preferences. Our data indicates that hedge funds own 18% of Fate Therapeutics. That catches my attention because hedge funds sometimes try to influence management, or bring about changes that will create near term value for shareholders. Redmile Group, LLC is currently the company's largest shareholder with 11% of shares outstanding. With 9.3% and 9.0% of the shares outstanding respectively, BlackRock, Inc. and The Vanguard Group, Inc. are the second and third largest shareholders.

On further inspection, we found that more than half the company's shares are owned by the top 9 shareholders, suggesting that the interests of the larger shareholders are balanced out to an extent by the smaller ones.

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 plenty of analysts covering the stock, so it might be worth seeing what they are forecasting, too.

Insider Ownership Of Fate Therapeutics

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.

We can report that insiders do own shares in Fate Therapeutics, Inc.. In their own names, insiders own US$2.1m worth of stock in the US$146m company. It is good to see some investment by insiders, but we usually like to see higher insider holdings. It might be worth checking if those insiders have been buying.

General Public Ownership

The general public-- including retail investors -- own 14% 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:

It's always worth thinking about the different groups who own shares in a company. But to understand Fate Therapeutics better, we need to consider many other factors. Case in point: We've spotted 3 warning signs for Fate Therapeutics you should be aware of, and 2 of them can't be ignored.

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.

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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.