Institutional shareholders may be less affected by ALLETE, Inc.'s (NYSE:ALE) pullback last week after a year of 3.9% returns

Key Insights

• Institutions' substantial holdings in ALLETE implies that they have significant influence over the company's share price
• 50% of the business is held by the top 16 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 ALLETE, Inc. (NYSE:ALE), it is important to understand the ownership structure of the business. With 77% stake, institutions possess the maximum shares in the company. Put another way, the group faces the maximum upside potential (or downside risk).

No shareholder likes losing money on their investments, especially institutional investors who saw their holdings drop 3.3% in value last week. Still, the 3.9% one-year gains may have helped mitigate their overall losses. We would assume however, that they would be on the lookout for weakness in the future.

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

See our latest analysis for ALLETE

What Does The Institutional Ownership Tell Us About ALLETE?

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 ALLETE. 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 ALLETE'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. Hedge funds don't have many shares in ALLETE. BlackRock, Inc. is currently the largest shareholder, with 13% of shares outstanding. With 11% and 4.0% of the shares outstanding respectively, The Vanguard Group, Inc. and State Street Global Advisors, Inc. are the second and third largest shareholders.

Looking at the shareholder registry, we can see that 50% of the ownership is controlled by the top 16 shareholders, meaning that no single shareholder has a majority interest in the ownership.

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 plenty of analysts covering the stock, so it might be worth seeing what they are forecasting, too.

Insider Ownership Of ALLETE

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.

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.

Our information suggests that ALLETE, Inc. insiders own under 1% of the company. It's a big company, so even a small proportional interest can create alignment between the board and shareholders. In this case insiders own US$8.1m worth of shares. It is good to see board members owning shares, but it might be worth checking if those insiders have been buying.

General Public Ownership

The general public-- including retail investors -- own 23% stake in the company, and hence can't easily be ignored. While this group can't necessarily call the shots, it can certainly have a real influence on how the company is run.

Next Steps:

It's always worth thinking about the different groups who own shares in a company. But to understand ALLETE better, we need to consider many other factors. To that end, you should be aware of the 1 warning sign we've spotted with ALLETE .

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.