In This Article:
Key Insights
-
Significant control over Xero by retail investors implies that the general public has more power to influence management and governance-related decisions
-
The top 25 shareholders own 38% of the company
To get a sense of who is truly in control of Xero Limited (ASX:XRO), it is important to understand the ownership structure of the business. The group holding the most number of shares in the company, around 59% to be precise, is retail investors. Put another way, the group faces the maximum upside potential (or downside risk).
Institutions, on the other hand, account for 31% of the company's stockholders. Institutions will often hold stock in bigger companies, and we expect to see insiders owning a noticeable percentage of the smaller ones.
Let's take a closer look to see what the different types of shareholders can tell us about Xero.
Check out our latest analysis for Xero
What Does The Institutional Ownership Tell Us About Xero?
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.
We can see that Xero 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 Xero's historic earnings and revenue below, but keep in mind there's always more to the story.
We note that hedge funds don't have a meaningful investment in Xero. Because actions speak louder than words, we consider it a good sign when insiders own a significant stake in a company. In Xero's case, its Top Key Executive, Rod Drury, is the largest shareholder, holding 6.6% of shares outstanding. With 6.0% and 5.1% of the shares outstanding respectively, Pinnacle Fund Services Limited and Hyperion Asset Management Limited are the second and third largest shareholders.
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.