Institutional owners may consider drastic measures as Foghorn Therapeutics Inc.'s (NASDAQ:FHTX) recent US$42m drop adds to long-term losses

Key Insights

• Given the large stake in the stock by institutions, Foghorn Therapeutics' stock price might be vulnerable to their trading decisions
• The top 5 shareholders own 53% of the company
• Using data from analyst forecasts alongside ownership research, one can better assess the future performance of a company

To get a sense of who is truly in control of Foghorn Therapeutics Inc. (NASDAQ:FHTX), it is important to understand the ownership structure of the business. The group holding the most number of shares in the company, around 35% to be precise, is institutions. That is, the group stands to benefit the most if the stock rises (or lose the most if there is a downturn).

And institutional investors endured the highest losses after the company's share price fell by 13% last week. The recent loss, which adds to a one-year loss of 41% for stockholders, may not sit well with this group of investors. Often called “market movers", institutions wield significant power in influencing the price dynamics of any stock. As a result, if the downtrend continues, institutions may face pressures to sell Foghorn Therapeutics, which might have negative implications on individual investors.

Let's delve deeper into each type of owner of Foghorn Therapeutics, beginning with the chart below.

View our latest analysis for Foghorn Therapeutics

What Does The Institutional Ownership Tell Us About Foghorn Therapeutics?

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.

As you can see, institutional investors have a fair amount of stake in Foghorn Therapeutics. 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 Foghorn Therapeutics' earnings history below. Of course, the future is what really matters.

Our data indicates that hedge funds own 5.3% of Foghorn 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. Looking at our data, we can see that the largest shareholder is Flagship Pioneering, Inc with 23% of shares outstanding. FMR LLC is the second largest shareholder owning 11% of common stock, and Eli Lilly and Company holds about 7.2% of the company stock. Furthermore, CEO Adrian H. Gottschalk is the owner of 0.9% of the company's shares.

Our research also brought to light the fact that roughly 53% of the company is controlled by the top 5 shareholders suggesting that these owners wield significant influence on the business.

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. Quite a few analysts cover the stock, so you could look into forecast growth quite easily.

Insider Ownership Of Foghorn Therapeutics

The definition of an insider can differ slightly between different countries, but members of the board of directors always count. The company management answer to the board and the latter should represent the interests of shareholders. Notably, sometimes top-level managers are on the board themselves.

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 most recent data indicates that insiders own some shares in Foghorn Therapeutics Inc.. It has a market capitalization of just US$310m, and insiders have US$25m worth of shares, in their own names. It is good to see some investment by insiders, but it might be worth checking if those insiders have been buying.

General Public Ownership

With a 21% ownership, the general public, mostly comprising of individual investors, have some degree of sway over Foghorn Therapeutics. 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.

Private Equity Ownership

With an ownership of 23%, private equity firms are in a position to play a role in shaping corporate strategy with a focus on value creation. 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 7.2% of Foghorn Therapeutics. This may be a strategic interest and the two companies may have related business interests. It could be that they have de-merged. This holding is probably worth investigating further.

Next Steps:

It's always worth thinking about the different groups who own shares in a company. But to understand Foghorn Therapeutics better, we need to consider many other factors. Be aware that Foghorn Therapeutics is showing 4 warning signs in our investment analysis , and 1 of those is a bit concerning...

If you are like me, you may want to think about whether this company will grow or shrink. Luckily, you can check this free report showing analyst forecasts for its 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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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