Could The Magic Software Enterprises Ltd. (NASDAQ:MGIC) Ownership Structure Tell Us Something Useful?

Every investor in Magic Software Enterprises Ltd. (NASDAQ:MGIC) should be aware of the most powerful shareholder groups. Institutions often own shares in more established companies, while it's not unusual to see insiders own a fair bit of smaller companies. Companies that used to be publicly owned tend to have lower insider ownership.

Magic Software Enterprises is a smaller company with a market capitalization of US$563m, so it may still be flying under the radar of many institutional investors. Taking a look at our data on the ownership groups (below), it's seems that institutions own shares in the company. We can zoom in on the different ownership groups, to learn more about Magic Software Enterprises.

View our latest analysis for Magic Software Enterprises

What Does The Institutional Ownership Tell Us About Magic Software Enterprises?

Institutions typically measure themselves against a benchmark when reporting to their own investors, so they often become more enthusiastic about a stock once it's included in a major index. We would expect most companies to have some institutions on the register, especially if they are growing.

Magic Software Enterprises already has institutions on the share registry. Indeed, they own 31% of the company. This suggests some credibility amongst professional investors. But we can't rely on that fact alone, since institutions make bad investments sometimes, just like everyone does. 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 Magic Software Enterprises's historic earnings and revenue, below, but keep in mind there's always more to the story.

Magic Software Enterprises is not owned by hedge funds. Formula Systems (1985) Ltd. is currently the largest shareholder, with 45% of shares outstanding. Harel Insurance Investments and Finances Services Ltd, Asset Management Arm is the second largest shareholder with 7.4% of common stock, followed by Clal Financial Management Ltd, holding 5.2% of the stock.

Our analysis suggests that the top 2 shareholders collectively control 53% of the company's shares, implying that they have considerable power to influence the company's decisions.

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. 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 Magic Software Enterprises

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.

Our information suggests that Magic Software Enterprises Ltd. insiders own under 1% of the company. It has a market capitalization of just US$563m, and the board has only US$3.6m worth of shares in their own names. Many tend to prefer to see a board with bigger shareholdings. A good next step might be to take a look at this free summary of insider buying and selling.

General Public Ownership

With a 23% ownership, the general public have some degree of sway over MGIC. 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.

Public Company Ownership

We can see that public companies hold 45%, of the MGIC shares on issue. We can't be certain, but this is quite possible this is a strategic stake. The businesses may be similar, or work together.

Next Steps:

While it is well worth considering the different groups that own a company, there are other factors that are even more important. Case in point: We've spotted 2 warning signs for Magic Software Enterprises you should be aware of.

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.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Thank you for reading.