With 51% ownership in Zscaler, Inc. (NASDAQ:ZS), institutional investors have a lot riding on the business

Key Insights

• Significantly high institutional ownership implies Zscaler's stock price is sensitive to their trading actions
• A total of 25 investors have a majority stake in the company with 50% ownership
• Insiders have sold recently

Our free stock report includes 1 warning sign investors should be aware of before investing in Zscaler. Read for free now.

To get a sense of who is truly in control of Zscaler, Inc. (NASDAQ:ZS), 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 51% ownership. Put another way, the group faces the maximum upside potential (or downside risk).

Last week’s 4.5% gain means that institutional investors were on the positive end of the spectrum even as the company has shown strong longer-term trends. The gains from last week would have further boosted the one-year return to shareholders which currently stand at 20%.

Let's take a closer look to see what the different types of shareholders can tell us about Zscaler.

View our latest analysis for Zscaler

What Does The Institutional Ownership Tell Us About Zscaler?

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.

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

Investors should note that institutions actually own more than half the company, so they can collectively wield significant power. Zscaler is not owned by hedge funds. With a 17% stake, CEO Jagtar Chaudhry is the largest shareholder. For context, the second largest shareholder holds about 6.2% of the shares outstanding, followed by an ownership of 4.2% by the third-largest shareholder.

After doing some more digging, we found that the top 25 have the combined ownership of 50% in the company, suggesting that no single shareholder has significant control over the company.

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 are plenty of analysts covering the stock, so it might be worth seeing what they are forecasting, too.

Insider Ownership Of Zscaler

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.

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.

It seems insiders own a significant proportion of Zscaler, Inc.. It is very interesting to see that insiders have a meaningful US$6.1b stake in this US$31b business. Most would say this shows a good degree of alignment with shareholders, especially in a company of this size. You can click here to see if those insiders have been buying or selling.

General Public Ownership

The general public-- including retail investors -- own 29% stake in the company, and hence can't easily be ignored. 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. For instance, we've identified 1 warning sign for Zscaler that 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.