CS Disco, Inc.'s (NYSE:LAW) 15% loss last week hit both individual investors who own 51% as well as institutions

Key Insights

• Significant control over CS Disco by private equity firms implies that the general public has more power to influence management and governance-related decisions
• 51% of the business is held by the top 4 shareholders
• Insiders have sold recently

A look at the shareholders of CS Disco, Inc. (NYSE:LAW) can tell us which group is most powerful. We can see that private equity firms own the lion's share in the company with 51% ownership. That is, the group stands to benefit the most if the stock rises (or lose the most if there is a downturn).

While institutions who own 27% came under pressure after market cap dropped to US$353m last week,private equity firms took the most losses.

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

View our latest analysis for CS Disco

What Does The Institutional Ownership Tell Us About CS Disco?

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 CS Disco. 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 CS Disco's historic earnings and revenue below, but keep in mind there's always more to the story.

CS Disco is not owned by hedge funds. The company's largest shareholder is Deer Management Company, LLC, with ownership of 14%. LiveOak Ventures is the second largest shareholder owning 14% of common stock, and The Stephens Group, LLC holds about 13% of the company stock.

To make our study more interesting, we found that the top 4 shareholders control more than half of the company which implies that this group has considerable sway over the company's decision-making.

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 a reasonable number of analysts covering the stock, so it might be useful to find out their aggregate view on the future.

Insider Ownership Of CS Disco

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. 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.

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 most recent data indicates that insiders own a reasonable proportion of CS Disco, Inc.. Insiders have a US$36m stake in this US$353m business. We would say this shows alignment with shareholders, but it is worth noting that the company is still quite small; some insiders may have founded the business. You can click here to see if those insiders have been buying or selling.

General Public Ownership

The general public-- including retail investors -- own 12% 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

Private equity firms hold a 51% stake in CS Disco. This suggests they can be influential in key policy decisions. 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. For example, we've discovered 2 warning signs for CS Disco that you should be aware of before investing here.

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.