In the wake of SJW Group's (NASDAQ:SJW) latest US$90m market cap drop, institutional owners may be forced to take severe actions

Key Insights

• Institutions' substantial holdings in SJW Group implies that they have significant influence over the company's share price
• 50% of the business is held by the top 7 shareholders
• Analyst forecasts along with ownership data serve to give a strong idea about prospects for a business

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Every investor in SJW Group (NASDAQ:SJW) should be aware of the most powerful shareholder groups. And the group that holds the biggest piece of the pie are institutions with 79% ownership. Put another way, the group faces the maximum upside potential (or downside risk).

And institutional investors saw their holdings value drop by 5.0% last week. Needless to say, the recent loss which further adds to the one-year loss to shareholders of 5.2% might not go down well especially with this category of shareholders. Also referred to as "smart money", institutions have a lot of sway over how a stock's price moves. As a result, if the downtrend continues, institutions may face pressures to sell SJW Group, which might have negative implications on individual investors.

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

See our latest analysis for SJW Group

What Does The Institutional Ownership Tell Us About SJW Group?

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.

We can see that SJW Group does have institutional investors; and they hold a good portion of the company's stock. This implies the analysts working for those institutions have looked at the stock and they like it. But just like anyone else, they could be wrong. 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 SJW Group'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. We note that hedge funds don't have a meaningful investment in SJW Group. BlackRock, Inc. is currently the company's largest shareholder with 19% of shares outstanding. The Vanguard Group, Inc. is the second largest shareholder owning 7.8% of common stock, and Roscoe Moss holds about 6.3% of the company stock.

We also observed that the top 7 shareholders account for more than half of the share register, with a few smaller shareholders to balance the interests of the larger ones to a certain extent.

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. Quite a few analysts cover the stock, so you could look into forecast growth quite easily.

Insider Ownership Of SJW Group

The definition of an insider can differ slightly between different countries, but members of the board of directors always count. 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 SJW Group. The insiders have a meaningful stake worth US$141m. Most would see this as a real positive. Most would say this shows alignment of interests between shareholders and the board. Still, it might be worth checking if those insiders have been selling.

General Public Ownership

The general public, who are usually individual investors, hold a 12% stake in SJW Group. 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:

It's always worth thinking about the different groups who own shares in a company. But to understand SJW Group better, we need to consider many other factors. For instance, we've identified 2 warning signs for SJW Group (1 makes us a bit uncomfortable) that 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.