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Xero Limited (ASX:XRO) most popular amongst retail investors who own 59% of the shares, institutions hold 31%

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

  • Insider ownership in Xero is 10%

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.

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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

ownership-breakdown
ownership-breakdown

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.

earnings-and-revenue-growth
earnings-and-revenue-growth

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.

Insider Ownership Of Xero

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.

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 insiders maintain a significant holding in Xero Limited. It is very interesting to see that insiders have a meaningful AU$1.4b stake in this AU$14b 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

The general public -- including retail investors -- own 59% of Xero. This level of ownership gives investors from the wider public some power to sway key policy decisions such as board composition, executive compensation, and the dividend payout ratio.

Next Steps:

While it is well worth considering the different groups that own a company, there are other factors that are even more important.

I always like to check for a history of revenue growth. You can too, by accessing this free chart of historic revenue and earnings in this detailed graph.

If you are like me, you may want to think about whether this company will grow or shrink. Luckily, you can check this free report showing analyst forecasts for its future.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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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