Yahoo Finance Arista Networks, Inc.'s (NYSE:ANET) latest 3.0% decline adds to one-year losses, institutional investors may consider drastic measures
Every investor in Arista Networks, Inc. (NYSE:ANET) should be aware of the most powerful shareholder groups. And the group that holds the biggest piece of the pie are institutions with 67% ownership. Put another way, the group faces the maximum upside potential (or downside risk).
And so it follows that institutional investors was the group most impacted after the company's market cap fell to US$34b last week after a 3.0% drop in the share price. Needless to say, the recent loss which further adds to the one-year loss to shareholders of 6.0% might not go down well especially with this category of shareholders. Often called “market makers”, institutions wield significant power in influencing the price dynamics of any stock. As a result, if the decline continues, institutional investors may be pressured to sell Arista Networks which might hurt individual investors.
Let's delve deeper into each type of owner of Arista Networks, beginning with the chart below.
See our latest analysis for Arista Networks
What Does The Institutional Ownership Tell Us About Arista Networks?
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.
Arista Networks already has institutions on the share registry. Indeed, they own a respectable stake in the company. This suggests some credibility amongst professional investors. But we can't rely on that fact alone since institutions make bad investments sometimes, just like everyone does. 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 Arista Networks, (below). Of course, keep in mind that there are other factors to consider, too.
Since institutional investors own more than half the issued stock, the board will likely have to pay attention to their preferences. We note that hedge funds don't have a meaningful investment in Arista Networks. Because actions speak louder than words, we consider it a good sign when insiders own a significant stake in a company. In Arista Networks' case, its Top Key Executive, Andreas Bechtolsheim, is the largest shareholder, holding 15% of shares outstanding. The Vanguard Group, Inc. is the second largest shareholder owning 8.7% of common stock, and BlackRock, Inc. holds about 6.0% of the company stock. Furthermore, CEO Jayshree Ullal is the owner of 3.5% of the company's shares.
On further inspection, we found that more than half the company's shares are owned by the top 10 shareholders, suggesting that the interests of the larger shareholders are balanced out to an extent by the smaller ones.
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. Quite a few analysts cover the stock, so you could look into forecast growth quite easily.
Insider Ownership Of Arista Networks
The definition of an insider can differ slightly between different countries, but members of the board of directors always count. Company management run the business, but the CEO will answer to the board, even if he or she is a member of it.
Most consider insider ownership a positive because it can indicate the board is well aligned with other shareholders. However, on some occasions too much power is concentrated within this group.
Our information suggests that insiders maintain a significant holding in Arista Networks, Inc.. It is very interesting to see that insiders have a meaningful US$7.8b stake in this US$34b business. Most would be pleased to see the board is investing alongside them. You may wish to access this free chart showing recent trading by insiders.
General Public Ownership
With a 10% ownership, the general public, mostly comprising of individual investors, have some degree of sway over Arista Networks. 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:
I find it very interesting to look at who exactly owns a company. But to truly gain insight, we need to consider other information, too. Take risks for example - Arista Networks has 1 warning sign we think you should be aware of.
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.
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