Institutional investors are Bandwidth Inc.'s (NASDAQ:BAND) biggest bettors and were rewarded after last week's US$58m market cap gain

Key Insights

• Given the large stake in the stock by institutions, Bandwidth's stock price might be vulnerable to their trading decisions
• 51% of the business is held by the top 15 shareholders
• Using data from analyst forecasts alongside ownership research, one can better assess the future performance of a company

To get a sense of who is truly in control of Bandwidth Inc. (NASDAQ:BAND), it is important to understand the ownership structure of the business. With 70% stake, institutions possess the maximum shares in the company. That is, the group stands to benefit the most if the stock rises (or lose the most if there is a downturn).

And as as result, institutional investors reaped the most rewards after the company's stock price gained 11% last week. One-year return to shareholders is currently 81% and last week’s gain was the icing on the cake.

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

See our latest analysis for Bandwidth

What Does The Institutional Ownership Tell Us About Bandwidth?

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

Since institutional investors own more than half the issued stock, the board will likely have to pay attention to their preferences. We note that hedge funds don't have a meaningful investment in Bandwidth. BlackRock, Inc. is currently the largest shareholder, with 11% of shares outstanding. For context, the second largest shareholder holds about 6.2% of the shares outstanding, followed by an ownership of 5.0% by the third-largest shareholder. Furthermore, CEO David Morken is the owner of 0.5% of the company's shares.

A closer look at our ownership figures suggests that the top 15 shareholders have a combined ownership of 51% implying that no single shareholder has a majority.

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 Bandwidth

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. The company management answer to the board and the latter should represent the interests of shareholders. Notably, sometimes top-level managers are on the board themselves.

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.

Shareholders would probably be interested to learn that insiders own shares in Bandwidth Inc.. As individuals, the insiders collectively own US$41m worth of the US$529m company. It is good to see some investment by insiders, but it might be worth checking if those insiders have been buying.

General Public Ownership

With a 18% ownership, the general public, mostly comprising of individual investors, have some degree of sway over Bandwidth. 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 Company Ownership

We can see that Private Companies own 4.0%, of the shares on issue. Private companies may be related parties. Sometimes insiders have an interest in a public company through a holding in a private company, rather than in their own capacity as an individual. While it's hard to draw any broad stroke conclusions, it is worth noting as an area for further research.

Next Steps:

While it is well worth considering the different groups that own a company, there are other factors that are even more important. Consider for instance, the ever-present spectre of investment risk. We've identified 1 warning sign with Bandwidth , and understanding them should be part of your investment process.

Ultimately the future is most important. You can access this free report on analyst forecasts for the company.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.