Institutional investors may overlook Cognyte Software Ltd.'s (NASDAQ:CGNT) recent US$73m market cap drop as long-term gains remain positive

Key Insights

• Given the large stake in the stock by institutions, Cognyte Software's stock price might be vulnerable to their trading decisions
• A total of 7 investors have a majority stake in the company with 53% ownership
• Using data from company's past performance alongside ownership research, one can better assess the future performance of a company

To get a sense of who is truly in control of Cognyte Software Ltd. (NASDAQ:CGNT), it is important to understand the ownership structure of the business. We can see that institutions own the lion's share in the company with 46% ownership. In other words, the group stands to gain the most (or lose the most) from their investment into the company.

Institutional investors endured the highest losses after the company's market cap fell by US$73m last week. However, the 11% one-year returns may have helped alleviate their overall losses. They should, however, be mindful of further losses in the future.

In the chart below, we zoom in on the different ownership groups of Cognyte Software.

See our latest analysis for Cognyte Software

What Does The Institutional Ownership Tell Us About Cognyte Software?

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 Cognyte Software. 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. If multiple institutions change their view on a stock at the same time, you could see the share price drop fast. It's therefore worth looking at Cognyte Software's earnings history below. Of course, the future is what really matters.

Our data indicates that hedge funds own 22% of Cognyte Software. That catches my attention because hedge funds sometimes try to influence management, or bring about changes that will create near term value for shareholders. Looking at our data, we can see that the largest shareholder is Topline Capital Management, LLC with 13% of shares outstanding. For context, the second largest shareholder holds about 9.1% of the shares outstanding, followed by an ownership of 8.9% by the third-largest shareholder. Furthermore, CEO Elad Sharon is the owner of 0.5% of the company's shares.

On further inspection, we found that more than half the company's shares are owned by the top 7 shareholders, suggesting that the interests of the larger shareholders are balanced out to an extent by the smaller ones.

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. While there is some analyst coverage, the company is probably not widely covered. So it could gain more attention, down the track.

Insider Ownership Of Cognyte Software

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 Cognyte Software Ltd.. As individuals, the insiders collectively own US$24m worth of the US$610m 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

The general public-- including retail investors -- own 21% stake in the company, and hence can't easily be ignored. 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

With a stake of 7.9%, private equity firms could influence the Cognyte Software board. 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:

While it is well worth considering the different groups that own a company, there are other factors that are even more important. Take risks for example - Cognyte Software has 1 warning sign we think you should be aware of.

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.