Institutional investors may overlook Applied Optoelectronics, Inc.'s (NASDAQ:AAOI) recent US$249m market cap drop as long-term gains remain positive

Key Insights

• Significantly high institutional ownership implies Applied Optoelectronics' stock price is sensitive to their trading actions
• The top 21 shareholders own 51% of the company
• Recent sales by insiders

Every investor in Applied Optoelectronics, Inc. (NASDAQ:AAOI) should be aware of the most powerful shareholder groups. We can see that institutions own the lion's share in the company with 68% ownership. In other words, the group stands to gain the most (or lose the most) from their investment into the company.

Institutional investors endured the highest losses after the company's market cap fell by US$249m last week. However, the 86% one-year return to shareholders might have softened the blow. They should, however, be mindful of further losses in the future.

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

See our latest analysis for Applied Optoelectronics

What Does The Institutional Ownership Tell Us About Applied Optoelectronics?

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.

As you can see, institutional investors have a fair amount of stake in Applied Optoelectronics. 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. 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 Applied Optoelectronics' earnings history below. Of course, the future is what really matters.

Since institutional investors own more than half the issued stock, the board will likely have to pay attention to their preferences. Hedge funds don't have many shares in Applied Optoelectronics. BlackRock, Inc. is currently the largest shareholder, with 6.7% of shares outstanding. For context, the second largest shareholder holds about 4.9% of the shares outstanding, followed by an ownership of 3.5% by the third-largest shareholder. Additionally, the company's CEO Chih-Hsiang Lin directly holds 2.1% of the total shares outstanding.

Looking at the shareholder registry, we can see that 51% of the ownership is controlled by the top 21 shareholders, meaning that no single shareholder has a majority interest in the ownership.

While it makes sense to study institutional ownership data for a company, it also makes sense to study analyst sentiments to know which way the wind is blowing. 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 Applied Optoelectronics

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.

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 Applied Optoelectronics, Inc.. It is a pretty big company, so it is generally a positive to see some potentially meaningful alignment. In this case, they own around US$73m 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 27% stake in Applied Optoelectronics. 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.

Next Steps:

I find it very interesting to look at who exactly owns a company. But to truly gain insight, we need to consider other information, too. Consider for instance, the ever-present spectre of investment risk. We've identified 3 warning signs with Applied Optoelectronics (at least 1 which is potentially serious) , and understanding them should be part of your investment process.

If you would prefer discover what analysts are predicting in terms of future growth, do not miss this free report on analyst forecasts.

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.