To get a sense of who is truly in control of Red 5 Limited (ASX:RED), it is important to understand the ownership structure of the business. The group holding the most number of shares in the company, around 55% to be precise, is individual investors. In other words, the group stands to gain the most (or lose the most) from their investment into the company.
While the holdings of individual investors took a hit after last week’s 3.9% price drop, institutions with their 35% holdings also suffered.
Let's delve deeper into each type of owner of Red 5, beginning with the chart below.
What Does The Institutional Ownership Tell Us About Red 5?
Institutional investors commonly compare their own returns to the returns of a commonly followed index. So they generally do consider buying larger companies that are included in the relevant benchmark index.
We can see that Red 5 does have institutional investors; and they hold a good portion of the company's stock. 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 Red 5's historic earnings and revenue below, but keep in mind there's always more to the story.
ASX:RED Earnings and Revenue Growth July 2nd 2024
Hedge funds don't have many shares in Red 5. The company's largest shareholder is Van Eck Associates Corporation, with ownership of 9.1%. Meanwhile, the second and third largest shareholders, hold 6.1% and 3.4%, of the shares outstanding, respectively.
Our studies suggest that the top 25 shareholders collectively control less than half of the company's shares, meaning that the company's shares are widely disseminated and there is no dominant shareholder.
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 Red 5
While the precise definition of an insider can be subjective, almost everyone considers board members to be insiders. 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.
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 see that insiders own shares in Red 5 Limited. It is a pretty big company, so it is generally a positive to see some potentially meaningful alignment. In this case, they own around AU$28m 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 -- including retail investors -- own 55% of Red 5. With this amount of ownership, retail investors can collectively play a role in decisions that affect shareholder returns, such as dividend policies and the appointment of directors. They can also exercise the power to vote on acquisitions or mergers that may not improve profitability.
Private Company Ownership
Our data indicates that Private Companies hold 8.4%, of the company's shares. It might be worth looking deeper into this. If related parties, such as insiders, have an interest in one of these private companies, that should be disclosed in the annual report. Private companies may also have a strategic interest in the company.
Next Steps:
It's always worth thinking about the different groups who own shares in a company. But to understand Red 5 better, we need to consider many other factors. Case in point: We've spotted 2 warning signs for Red 5 you should be aware of, and 1 of them can't be ignored.
If you would prefer discover what analysts are predicting in terms of future growth, do not miss this freereport 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.
