American Electric Power Company, Inc.'s (NASDAQ:AEP) recent 4.0% pullback adds to one-year year losses, institutional owners may take drastic measures
Key Insights
Institutions' substantial holdings in American Electric Power Company implies that they have significant influence over the company's share price
The top 25 shareholders own 50% of the company
Analyst forecasts along with ownership data serve to give a strong idea about prospects for a business
If you want to know who really controls American Electric Power Company, Inc. (NASDAQ:AEP), then you'll have to look at the makeup of its share registry. The group holding the most number of shares in the company, around 76% to be precise, is institutions. Put another way, the group faces the maximum upside potential (or downside risk).
As a result, institutional investors endured the highest losses last week after market cap fell by US$1.6b. Needless to say, the recent loss which further adds to the one-year loss to shareholders of 9.6% 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. Hence, if weakness in American Electric Power Company's share price continues, institutional investors may feel compelled to sell the stock, which might not be ideal for individual investors.
In the chart below, we zoom in on the different ownership groups of American Electric Power Company.
Check out our latest analysis for American Electric Power Company
What Does The Institutional Ownership Tell Us About American Electric Power Company?
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.
American Electric Power Company already has institutions on the share registry. Indeed, they own a respectable stake in the company. 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. It is not uncommon to see a big share price drop if two large institutional investors try to sell out of a stock at the same time. So it is worth checking the past earnings trajectory of American Electric Power Company, (below). Of course, keep in mind that there are other factors to consider, too.
Investors should note that institutions actually own more than half the company, so they can collectively wield significant power. Hedge funds don't have many shares in American Electric Power Company. The Vanguard Group, Inc. is currently the largest shareholder, with 9.5% of shares outstanding. For context, the second largest shareholder holds about 8.0% of the shares outstanding, followed by an ownership of 5.3% by the third-largest shareholder.
A deeper look at our ownership data shows that the top 25 shareholders collectively hold less than half of the register, suggesting a large group of small holders where no single shareholder has a majority.
While studying institutional ownership for a company can add value to your research, it is also a good practice to research analyst recommendations to get a deeper understand of a stock's expected performance. 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 American Electric Power Company
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. Company management run the business, but the CEO will answer to the board, even if he or she is a member of it.
I generally consider insider ownership to be a good thing. However, on some occasions it makes it more difficult for other shareholders to hold the board accountable for decisions.
Our information suggests that American Electric Power Company, Inc. insiders own under 1% of the company. It is a very large company, so it would be surprising to see insiders own a large proportion of the company. Though their holding amounts to less than 1%, we can see that board members collectively own US$28m worth of shares (at current prices). In this sort of situation, it can be more interesting to see if those insiders have been buying or selling.
General Public Ownership
The general public-- including retail investors -- own 24% stake in the company, and hence can't easily be ignored. This size of ownership, while considerable, may not be enough to change company policy if the decision is not in sync with other large shareholders.
Next Steps:
It's always worth thinking about the different groups who own shares in a company. But to understand American Electric Power Company better, we need to consider many other factors. Take risks for example - American Electric Power Company has 2 warning signs (and 1 which is potentially serious) we think you should know about.
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.