Institutions profited after CS Disco, Inc.'s (NYSE:LAW) market cap rose US$73m last week but private equity firms profited the most

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
• The top 5 shareholders own 55% of the company
• Insiders have been selling lately

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If you want to know who really controls CS Disco, Inc. (NYSE:LAW), then you'll have to look at the makeup of its share registry. We can see that private equity firms own the lion's share in the company with 48% ownership. That is, the group stands to benefit the most if the stock rises (or lose the most if there is a downturn).

While private equity firms were the group that reaped the most benefits after last week’s 18% price gain, institutions also received a 29% cut.

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

View our latest analysis for CS Disco

What Does The Institutional Ownership Tell Us About CS Disco?

Institutional investors commonly compare their own returns to the returns of a commonly followed index. So they generally do consider buying larger companies that are included in the relevant benchmark index.

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

Hedge funds don't have many shares in CS Disco. Looking at our data, we can see that the largest shareholder is Deer Management Co. LLC with 14% of shares outstanding. For context, the second largest shareholder holds about 13% of the shares outstanding, followed by an ownership of 12% by the third-largest shareholder.

To make our study more interesting, we found that the top 5 shareholders control more than half of the company which implies that this group has considerable sway over the company's decision-making.

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 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

While the precise definition of an insider can be subjective, almost everyone considers board members to be insiders. 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.

Insider ownership is positive when it signals leadership are thinking like the true owners of the company. However, high insider ownership can also give immense power to a small group within the company. This can be negative in some circumstances.

We can report that insiders do own shares in CS Disco, Inc.. In their own names, insiders own US$38m worth of stock in the US$422m company. This shows at least some alignment. You can click here to see if those insiders have been buying or selling.

General Public Ownership

With a 13% ownership, the general public, mostly comprising of individual investors, have some degree of sway over CS Disco. 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

Private equity firms hold a 48% stake in CS Disco. This suggests they can be influential in key policy decisions. Some might like this, because private equity are sometimes activists who hold management accountable. But other times, private equity is selling out, having taking the company public.

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 CS Disco you should be aware of.

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.