Institutional investors in Terns Pharmaceuticals, Inc. (NASDAQ:TERN) lost 9.7% last week but have reaped the benefits of longer-term growth

Key Insights

• Significantly high institutional ownership implies Terns Pharmaceuticals' stock price is sensitive to their trading actions
• The top 10 shareholders own 52% of the company
• Insiders have bought recently

A look at the shareholders of Terns Pharmaceuticals, Inc. (NASDAQ:TERN) can tell us which group is most powerful. We can see that institutions own the lion's share in the company with 54% ownership. In other words, the group stands to gain the most (or lose the most) from their investment into the company.

Institutional investors endured the highest losses after the company's market cap fell by US$67m last week. Still, the 44% one-year gains may have helped mitigate their overall losses. 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 Terns Pharmaceuticals.

View our latest analysis for Terns Pharmaceuticals

What Does The Institutional Ownership Tell Us About Terns 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.

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

Institutional investors own over 50% of the company, so together than can probably strongly influence board decisions. It would appear that 5.9% of Terns Pharmaceuticals shares are controlled by hedge funds. That worth noting, since hedge funds are often quite active investors, who may try to influence management. Many want to see value creation (and a higher share price) in the short term or medium term. Looking at our data, we can see that the largest shareholder is OrbiMed Advisors LLC with 9.0% of shares outstanding. For context, the second largest shareholder holds about 7.3% of the shares outstanding, followed by an ownership of 7.2% by the third-largest shareholder.

We did some more digging and found that 10 of the top shareholders account for roughly 52% of the register, implying that along with larger shareholders, there are a few smaller shareholders, thereby balancing out each others interests somewhat.

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 Terns Pharmaceuticals

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.

Our most recent data indicates that insiders own less than 1% of Terns Pharmaceuticals, Inc.. It seems the board members have no more than US$4.3m worth of shares in the US$665m 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, who are usually individual investors, hold a 16% stake in Terns Pharmaceuticals. 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 24%, private equity firms could influence the Terns Pharmaceuticals board. Some investors might be encouraged by this, since private equity are sometimes able to encourage strategies that help the market see the value in the company. Alternatively, those holders might be exiting the investment after taking it public.

Next Steps:

It's always worth thinking about the different groups who own shares in a company. But to understand Terns Pharmaceuticals better, we need to consider many other factors. Like risks, for instance. Every company has them, and we've spotted 5 warning signs for Terns Pharmaceuticals (of which 2 make us uncomfortable!) 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.

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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.