Institutional investors may overlook The RealReal, Inc.'s (NASDAQ:REAL) recent US$82m market cap drop as long-term gains remain positive

Key Insights

• Institutions' substantial holdings in RealReal implies that they have significant influence over the company's share price
• A total of 13 investors have a majority stake in the company with 51% ownership
• Insiders have sold recently

Every investor in The RealReal, Inc. (NASDAQ:REAL) should be aware of the most powerful shareholder groups. We can see that institutions own the lion's share in the company with 66% ownership. Put another way, the group faces the maximum upside potential (or downside risk).

Institutional investors endured the highest losses after the company's market cap fell by US$82m last week. However, the 364% one-year return to shareholders might have softened the blow. They should, however, be mindful of further losses in the future.

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

View our latest analysis for RealReal

What Does The Institutional Ownership Tell Us About RealReal?

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 RealReal. 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. It is not uncommon to see a big share price drop if two large institutional investors try to sell out of a stock at the same time. So it is worth checking the past earnings trajectory of RealReal, (below). Of course, keep in mind that there are other factors to consider, too.

Since institutional investors own more than half the issued stock, the board will likely have to pay attention to their preferences. We note that hedge funds don't have a meaningful investment in RealReal. GreyLion Partners LP is currently the largest shareholder, with 6.8% of shares outstanding. BlackRock, Inc. is the second largest shareholder owning 6.5% of common stock, and Timothy Riley holds about 5.2% of the company stock. Additionally, the company's CEO Rati Levesque directly holds 0.5% of the total shares outstanding.

Looking at the shareholder registry, we can see that 51% of the ownership is controlled by the top 13 shareholders, meaning that no single shareholder has a majority interest in the ownership.

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. 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 RealReal

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

We can see that insiders own shares in The RealReal, Inc.. In their own names, insiders own US$86m worth of stock in the US$942m company. 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

With a 18% ownership, the general public, mostly comprising of individual investors, have some degree of sway over RealReal. 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 6.8%, private equity firms are in a position to play a role in shaping corporate strategy with a focus on value creation. 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 RealReal better, we need to consider many other factors. Like risks, for instance. Every company has them, and we've spotted 4 warning signs for RealReal (of which 1 is a bit unpleasant!) 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.