Institutional investors may overlook Nutanix, Inc.'s (NASDAQ:NTNX) recent US$681m market cap drop as long-term gains remain positive

Key Insights

• Given the large stake in the stock by institutions, Nutanix's stock price might be vulnerable to their trading decisions
• A total of 11 investors have a majority stake in the company with 51% ownership
• Recent sales by insiders

Every investor in Nutanix, Inc. (NASDAQ:NTNX) should be aware of the most powerful shareholder groups. We can see that institutions own the lion's share in the company with 78% ownership. Put another way, the group faces the maximum upside potential (or downside risk).

Institutional investors was the group most impacted after the company's market cap fell to US$17b last week. However, the 31% one-year return to shareholders may have helped lessen their pain. But they would probably be wary of future losses.

Let's delve deeper into each type of owner of Nutanix, beginning with the chart below.

View our latest analysis for Nutanix

What Does The Institutional Ownership Tell Us About Nutanix?

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.

As you can see, institutional investors have a fair amount of stake in Nutanix. 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 Nutanix's 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. Hedge funds don't have many shares in Nutanix. The company's largest shareholder is FMR LLC, with ownership of 15%. For context, the second largest shareholder holds about 9.5% of the shares outstanding, followed by an ownership of 6.3% by the third-largest shareholder.

A closer look at our ownership figures suggests that the top 11 shareholders have a combined ownership of 51% implying that no single shareholder has a majority.

While studying institutional ownership for a company can add value to your research, it is also a good practice to research analyst recommendations to get a deeper understand of a stock's expected performance. There are plenty of analysts covering the stock, so it might be worth seeing what they are forecasting, too.

Insider Ownership Of Nutanix

The definition of an insider can differ slightly between different countries, but members of the board of directors always count. Management ultimately answers to the board. However, it is not uncommon for managers to be executive board members, especially if they are a founder or the CEO.

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 data suggests that insiders own under 1% of Nutanix, Inc. in their own names. As it is a large company, we'd only expect insiders to own a small percentage of it. But it's worth noting that they own US$84m worth of shares. In this sort of situation, it can be more interesting to see if those insiders have been buying or selling.

General Public Ownership

With a 16% ownership, the general public, mostly comprising of individual investors, have some degree of sway over Nutanix. While this group can't necessarily call the shots, it can certainly have a real influence on how the company is run.

Private Equity Ownership

With a stake of 6.3%, private equity firms could influence the Nutanix 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:

It's always worth thinking about the different groups who own shares in a company. But to understand Nutanix better, we need to consider many other factors. Consider for instance, the ever-present spectre of investment risk. We've identified 2 warning signs with Nutanix (at least 1 which doesn't sit too well with us) , and understanding them should be part of your investment process.

If you are like me, you may want to think about whether this company will grow or shrink. Luckily, you can check this free report showing analyst forecasts for its 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.