Freedom Insurance Group Ltd (ASX:FIG) opened 29% lower this morning

Freedom Insurance Group is a smaller company with a market capitalisation of around $20 million, so it unlikely to interest most institutional investors. However, Freedom Insurance Group does have institutional investors; and they hold 22.3% of the stock.

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 when earnings are falling.

The situation is certainly dire for Freedom Insurance Group Ltd, since the Royal Commission into Banking has exposed problems with its business model.

As a result, some analysts are now saying that the stock is worth very little.

To quote Ethical Equities,

“being generous, the net book value is around $35 million, versus the current market capitalisation of $31 million.Once you factor in redundancy costs, and the risk that the $73 million “net present value of trail commission” will be written down, I think it is reasonable to argue that Freedom Insurance is very overvalued. Once you consider in the potential for a class action, then the possible downside is close to 100%…”

You can read the full report here.

Our information suggests that insiders maintain a significant holding in Freedom Insurance Group Limited. You can click here to see if they have been buying or selling.

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.

To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.

The author has no position in the stock mentioned. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.