With 37% ownership in Trevi Therapeutics, Inc. (NASDAQ:TRVI), institutional investors have a lot riding on the business

Key Insights

• Given the large stake in the stock by institutions, Trevi Therapeutics' stock price might be vulnerable to their trading decisions
• A total of 6 investors have a majority stake in the company with 50% ownership
• Analyst forecasts along with ownership data serve to give a strong idea about prospects for a business

If you want to know who really controls Trevi Therapeutics, Inc. (NASDAQ:TRVI), then you'll have to look at the makeup of its share registry. With 37% 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.

And last week, institutional investors ended up benefitting the most after the company hit US$223m in market cap. One-year return to shareholders is currently 42% and last week’s gain was the icing on the cake.

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

See our latest analysis for Trevi Therapeutics

What Does The Institutional Ownership Tell Us About Trevi 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.

We can see that Trevi Therapeutics does have institutional investors; and they hold a good portion of the company's stock. This suggests some credibility amongst professional investors. But we can't rely on that fact alone since institutions make bad investments sometimes, just like everyone does. 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 Trevi Therapeutics' historic earnings and revenue below, but keep in mind there's always more to the story.

It looks like hedge funds own 14% of Trevi Therapeutics shares. 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. The company's largest shareholder is New Enterprise Associates, Inc., with ownership of 16%. Meanwhile, the second and third largest shareholders, hold 10% and 7.9%, of the shares outstanding, respectively.

We did some more digging and found that 6 of the top shareholders account for roughly 50% of the register, implying that along with larger shareholders, there are a few smaller shareholders, thereby balancing out each others interests somewhat.

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 Trevi Therapeutics

While the precise definition of an insider can be subjective, almost everyone considers board members to be insiders. 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.

We can report that insiders do own shares in Trevi Therapeutics, Inc.. It has a market capitalization of just US$223m, and insiders have US$2.9m worth of shares, in their own names. Some would say this shows alignment of interests between shareholders and the board. But it might be worth checking if those insiders have been selling.

General Public Ownership

The general public, who are usually individual investors, hold a 21% stake in Trevi Therapeutics. 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

Private equity firms hold a 27% stake in Trevi Therapeutics. This suggests they can be influential in key policy decisions. Sometimes we see private equity stick around for the long term, but generally speaking they have a shorter investment horizon and -- as the name suggests -- don't invest in public companies much. After some time they may look to sell and redeploy capital elsewhere.

Next Steps:

It's always worth thinking about the different groups who own shares in a company. But to understand Trevi Therapeutics better, we need to consider many other factors. Take risks for example - Trevi Therapeutics has 4 warning signs (and 2 which are concerning) 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.

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