Following a 5.7% decline over last year, recent gains may please NexPoint Diversified Real Estate Trust (NYSE:NXDT) institutional owners

Key Insights

• Significantly high institutional ownership implies NexPoint Diversified Real Estate Trust's stock price is sensitive to their trading actions
• 50% of the business is held by the top 12 shareholders
• Insider ownership in NexPoint Diversified Real Estate Trust is 14%

A look at the shareholders of NexPoint Diversified Real Estate Trust (NYSE:NXDT) can tell us which group is most powerful. With 51% stake, institutions possess the maximum shares in the company. Put another way, the group faces the maximum upside potential (or downside risk).

Institutional investors would probably welcome last week's 14% increase in the share price after a year of 5.7% losses as a sign that returns may to begin trending higher.

In the chart below, we zoom in on the different ownership groups of NexPoint Diversified Real Estate Trust.

View our latest analysis for NexPoint Diversified Real Estate Trust

What Does The Institutional Ownership Tell Us About NexPoint Diversified Real Estate Trust?

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.

As you can see, institutional investors have a fair amount of stake in NexPoint Diversified Real Estate Trust. 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. 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 NexPoint Diversified Real Estate Trust'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. NexPoint Diversified Real Estate Trust is not owned by hedge funds. James Dondero is currently the largest shareholder, with 13% of shares outstanding. Meanwhile, the second and third largest shareholders, hold 8.4% and 6.1%, of the shares outstanding, respectively.

A closer look at our ownership figures suggests that the top 12 shareholders have a combined ownership of 50% implying that no single shareholder has a majority.

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. As far as we can tell there isn't analyst coverage of the company, so it is probably flying under the radar.

Insider Ownership Of NexPoint Diversified Real Estate Trust

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.

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.

Our most recent data indicates that insiders own a reasonable proportion of NexPoint Diversified Real Estate Trust. It has a market capitalization of just US$242m, and insiders have US$35m worth of shares in their own names. This may suggest that the founders still own a lot of shares. You can click here to see if they have been buying or selling.

General Public Ownership

The general public, who are usually individual investors, hold a 34% stake in NexPoint Diversified Real Estate Trust. 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 NexPoint Diversified Real Estate Trust better, we need to consider many other factors. Like risks, for instance. Every company has them, and we've spotted 4 warning signs for NexPoint Diversified Real Estate Trust (of which 3 are significant!) you should know about.

Of course this may not be the best stock to buy. Therefore, you may wish to see our free collection of interesting prospects boasting favorable financials.

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.