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 53% to be precise, is individual investors. Put another way, the group faces the maximum upside potential (or downside risk).
While individual investors were the group that benefitted the most from last week's AU$916m market cap gain, institutions too had a 37% share in those profits.
In the chart below, we zoom in on the different ownership groups of Xero.
View our latest analysis for Xero
What Does The Institutional Ownership Tell Us About Xero?
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 Xero 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. 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 Xero, (below). Of course, keep in mind that there are other factors to consider, too.
Xero is not owned by hedge funds. From our data, we infer that the largest shareholder is Rod Drury (who also holds the title of Top Key Executive) with 6.6% of shares outstanding. Its usually considered a good sign when insiders own a significant number of shares in the company, and in this case, we're glad to see a company insider play the role of a key stakeholder. Hyperion Asset Management Limited is the second largest shareholder owning 6.3% of common stock, and Pinnacle Fund Services Limited holds about 6.0% of the company stock.
On studying our ownership data, we found that 25 of the top shareholders collectively own less than 50% of the share register, implying that no single individual has a majority interest.
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 Xero
While the precise definition of an insider can be subjective, almost everyone considers board members to be insiders. Management ultimately answers to the board. However, it is not uncommon for managers to be executive board members, especially if they are a founder or the CEO.
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$1.1b stake in this AU$11b 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, who are usually individual investors, hold a substantial 53% stake in Xero, suggesting it is a fairly popular stock. This size of ownership gives investors from the general public some collective power. They can and probably do influence decisions on executive compensation, dividend policies and proposed business acquisitions.
It's always worth thinking about the different groups who own shares in a company. But to understand Xero better, we need to consider many other factors.
I like to dive deeper into how a company has performed in the past. You can access this interactive graph of past earnings, revenue and cash flow, for free.
Ultimately the future is most important. You can access this free report on analyst forecasts for the company.
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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