Institutional owners may take dramatic actions as Aehr Test Systems' (NASDAQ:AEHR) recent 22% drop adds to one-year losses

Key Insights

• Institutions' substantial holdings in Aehr Test Systems implies that they have significant influence over the company's share price
• A total of 18 investors have a majority stake in the company with 51% ownership
• Past performance of a company along with ownership data serve to give a strong idea about prospects for a business

To get a sense of who is truly in control of Aehr Test Systems (NASDAQ:AEHR), it is important to understand the ownership structure of the business. And the group that holds the biggest piece of the pie are institutions with 68% ownership. Put another way, the group faces the maximum upside potential (or downside risk).

And so it follows that institutional investors was the group most impacted after the company's market cap fell to US$360m last week after a 22% drop in the share price. The recent loss, which adds to a one-year loss of 74% for stockholders, may not sit well with this group of investors. Also referred to as "smart money", institutions have a lot of sway over how a stock's price moves. As a result, if the downtrend continues, institutions may face pressures to sell Aehr Test Systems, which might have negative implications on individual investors.

In the chart below, we zoom in on the different ownership groups of Aehr Test Systems.

View our latest analysis for Aehr Test Systems

What Does The Institutional Ownership Tell Us About Aehr Test Systems?

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.

Aehr Test Systems already has institutions on the share registry. Indeed, they own a respectable stake in the company. 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 Aehr Test Systems' historic earnings and revenue below, but keep in mind there's always more to the story.

Institutional investors own over 50% of the company, so together than can probably strongly influence board decisions. We note that hedge funds don't have a meaningful investment in Aehr Test Systems. Our data shows that The Vanguard Group, Inc. is the largest shareholder with 7.3% of shares outstanding. In comparison, the second and third largest shareholders hold about 7.0% and 4.2% of the stock. Additionally, the company's CEO Gayn Erickson directly holds 1.1% of the total shares outstanding.

Looking at the shareholder registry, we can see that 51% of the ownership is controlled by the top 18 shareholders, meaning that no single shareholder has a majority interest in the ownership.

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 is some analyst coverage of the stock, but it could still become more well known, with time.

Insider Ownership Of Aehr Test Systems

The definition of company insiders can be subjective and does vary between jurisdictions. Our data reflects individual insiders, capturing board members at the very least. 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 some shares in Aehr Test Systems. It has a market capitalization of just US$360m, and insiders have US$20m worth of shares, in their own names. It is good to see some investment by insiders, but it might be worth checking if those insiders have been buying.

General Public Ownership

The general public, who are usually individual investors, hold a 26% stake in Aehr Test Systems. 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:

I find it very interesting to look at who exactly owns a company. But to truly gain insight, we need to consider other information, too. Be aware that Aehr Test Systems is showing 4 warning signs in our investment analysis , and 2 of those are concerning...

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