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In the wake of CAE Inc.'s (TSE:CAE) latest CA$420m market cap drop, institutional owners may be forced to take severe actions

Key Insights

  • Institutions' substantial holdings in CAE implies that they have significant influence over the company's share price

  • A total of 20 investors have a majority stake in the company with 50% ownership

  • Analyst forecasts along with ownership data serve to give a strong idea about prospects for a business

To get a sense of who is truly in control of CAE Inc. (TSE:CAE), it is important to understand the ownership structure of the business. And the group that holds the biggest piece of the pie are institutions with 63% ownership. That is, the group stands to benefit the most if the stock rises (or lose the most if there is a downturn).

And so it follows that institutional investors was the group most impacted after the company's market cap fell to CA$9.3b last week after a 4.3% drop in the share price. This set of investors may especially be concerned about the current loss, which adds to a one-year loss of 4.9% for shareholders. Also referred to as "smart money", institutions have a lot of sway over how a stock's price moves. Hence, if weakness in CAE's share price continues, institutional investors may feel compelled to sell the stock, which might not be ideal for individual investors.

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Let's take a closer look to see what the different types of shareholders can tell us about CAE.

See our latest analysis for CAE

ownership-breakdown
ownership-breakdown

What Does The Institutional Ownership Tell Us About CAE?

Institutions typically measure themselves against a benchmark when reporting to their own investors, so they often become more enthusiastic about a stock once it's included in a major index. We would expect most companies to have some institutions on the register, especially if they are growing.

We can see that CAE does have institutional investors; and they hold a good portion of the company's stock. 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. 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 CAE'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

Investors should note that institutions actually own more than half the company, so they can collectively wield significant power. Our data indicates that hedge funds own 7.7% of CAE. That's interesting, because hedge funds can be quite active and activist. Many look for medium term catalysts that will drive the share price higher. Caisse de dépôt et placement du Québec is currently the largest shareholder, with 7.7% of shares outstanding. In comparison, the second and third largest shareholders hold about 7.7% and 4.6% of the stock.

A closer look at our ownership figures suggests that the top 20 shareholders have a combined ownership of 50% implying that no single shareholder has a majority.

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 plenty of analysts covering the stock, so it might be worth seeing what they are forecasting, too.

Insider Ownership Of CAE

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.

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 most recent data indicates that insiders own less than 1% of CAE Inc.. It's a big company, so even a small proportional interest can create alignment between the board and shareholders. In this case insiders own CA$15m worth of shares. It is always good to see at least some insider ownership, but it might be worth checking if those insiders have been selling.

General Public Ownership

The general public, who are usually individual investors, hold a 29% stake in CAE. 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. Consider for instance, the ever-present spectre of investment risk. We've identified 1 warning sign with CAE , and understanding them should be part of your investment process.

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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