Following a 21% decline over last year, recent gains may please Open Text Corporation (NASDAQ:OTEX) institutional owners

Key Insights

• Given the large stake in the stock by institutions, Open Text's stock price might be vulnerable to their trading decisions
• A total of 25 investors have a majority stake in the company with 51% ownership
• Using data from analyst forecasts alongside ownership research, one can better assess the future performance of a company

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A look at the shareholders of Open Text Corporation (NASDAQ:OTEX) can tell us which group is most powerful. The group holding the most number of shares in the company, around 77% to be precise, is institutions. In other words, the group stands to gain the most (or lose the most) from their investment into the company.

Last week's US$559m market cap gain would probably be appreciated by institutional investors, especially after a year of 21% losses.

In the chart below, we zoom in on the different ownership groups of Open Text.

View our latest analysis for Open Text

What Does The Institutional Ownership Tell Us About Open Text?

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 Open Text. This can indicate that the company has a certain degree of credibility in the investment community. However, it is best to be wary of relying on the supposed validation that comes with institutional investors. They too, get it wrong sometimes. 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 Open Text's earnings history below. Of course, the future is what really matters.

Investors should note that institutions actually own more than half the company, so they can collectively wield significant power. We note that hedge funds don't have a meaningful investment in Open Text. The company's largest shareholder is Jarislowsky, Fraser Limited, with ownership of 7.9%. For context, the second largest shareholder holds about 4.0% of the shares outstanding, followed by an ownership of 3.5% by the third-largest shareholder.

A closer look at our ownership figures suggests that the top 25 shareholders have a combined ownership of 51% implying that no single shareholder has a majority.

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. Quite a few analysts cover the stock, so you could look into forecast growth quite easily.

Insider Ownership Of Open Text

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. Company management run the business, but the CEO will answer to the board, even if he or she is a member of it.

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 Open Text Corporation. This is a big company, so it is good to see this level of alignment. Insiders own US$137m worth of shares (at current prices). It is good to see this level of investment by insiders. You can check here to see if those insiders have been buying recently.

General Public Ownership

The general public, who are usually individual investors, hold a 20% stake in Open Text. 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.

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 - Open Text has 2 warning signs (and 1 which is a bit concerning) we think 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.