Institutional investors may adopt severe steps after Redfin Corporation's (NASDAQ:RDFN) latest 23% drop adds to a year losses

Key Insights

• Given the large stake in the stock by institutions, Redfin's stock price might be vulnerable to their trading decisions
• The top 24 shareholders own 50% of the company
• Using data from analyst forecasts alongside ownership research, one can better assess the future performance of a company

A look at the shareholders of Redfin Corporation (NASDAQ:RDFN) can tell us which group is most powerful. We can see that institutions own the lion's share in the company with 59% ownership. In other words, the group stands to gain the most (or lose the most) from their investment into the company.

And so it follows that institutional investors was the group most impacted after the company's market cap fell to US$843m last week after a 23% drop in the share price. This set of investors may especially be concerned about the current loss, which adds to a one-year loss of 8.8% for shareholders. Institutions or "liquidity providers" control large sums of money and therefore, these types of investors usually have a lot of influence over stock price movements. As a result, if the decline continues, institutional investors may be pressured to sell Redfin which might hurt individual investors.

Let's take a closer look to see what the different types of shareholders can tell us about Redfin.

See our latest analysis for Redfin

What Does The Institutional Ownership Tell Us About Redfin?

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 Redfin does have institutional investors; and they hold a good portion of the company's stock. This implies the analysts working for those institutions have looked at the stock and they like it. But just like anyone else, they could be wrong. 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 Redfin's historic earnings and revenue below, but keep in mind there's always more to the story.

Since institutional investors own more than half the issued stock, the board will likely have to pay attention to their preferences. Redfin is not owned by hedge funds. The Vanguard Group, Inc. is currently the company's largest shareholder with 13% of shares outstanding. In comparison, the second and third largest shareholders hold about 8.0% and 4.0% of the stock. Additionally, the company's CEO Glenn Kelman directly holds 1.2% of the total shares outstanding.

After doing some more digging, we found that the top 24 have the combined ownership of 50% in the company, suggesting that no single shareholder has significant control over the company.

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 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 Redfin

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.

Most consider insider ownership a positive because it can indicate the board is well aligned with other shareholders. However, on some occasions too much power is concentrated within this group.

We can report that insiders do own shares in Redfin Corporation. As individuals, the insiders collectively own US$37m worth of the US$843m company. 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 36% ownership, the general public, mostly comprising of individual investors, have some degree of sway over Redfin. While this group can't necessarily call the shots, it can certainly have a real influence on how the company is run.

Next Steps:

It's always worth thinking about the different groups who own shares in a company. But to understand Redfin better, we need to consider many other factors. Like risks, for instance. Every company has them, and we've spotted 2 warning signs for Redfin (of which 1 makes us a bit uncomfortable!) you should know about.

But ultimately it is the future, not the past, that will determine how well the owners of this business will do. Therefore we think it advisable to take a look at this free report showing whether analysts are predicting a brighter 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.