Yahoo Finance Here's why institutional shareholders weren't concerned about Aramark's (NYSE:ARMK) 29% stock price decline
Key Insights
Significantly high institutional ownership implies Aramark's stock price is sensitive to their trading actions
52% of the business is held by the top 8 shareholders
Using data from analyst forecasts alongside ownership research, one can better assess the future performance of a company
To get a sense of who is truly in control of Aramark (NYSE:ARMK), it is important to understand the ownership structure of the business. The group holding the most number of shares in the company, around 100% to be precise, is institutions. That is, the group stands to benefit the most if the stock rises (or lose the most if there is a downturn).
Those of you with a keen eye may notice that Aramark's market cap fell by US$2.7b last week, but this wasn't any concern to institutional shareholders. The reason for the sharp fall in market cap was because Aramark spun off part of its uniform business into a new fully independent company, Vestis Corp (NYSE: VSTS).
Let's take a closer look to see what the different types of shareholders can tell us about Aramark.
View our latest analysis for Aramark
What Does The Institutional Ownership Tell Us About Aramark?
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.
As you can see, institutional investors have a fair amount of stake in Aramark. 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 Aramark, (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 Aramark. Capital Research and Management Company is currently the company's largest shareholder with 14% of shares outstanding. The Vanguard Group, Inc. is the second largest shareholder owning 9.7% of common stock, and BlackRock, Inc. holds about 9.2% of the company stock.
We did some more digging and found that 8 of the top shareholders account for roughly 52% of the register, implying that along with larger shareholders, there are a few smaller shareholders, thereby balancing out each others interests somewhat.
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. Quite a few analysts cover the stock, so you could look into forecast growth quite easily.
Insider Ownership Of Aramark
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 most recent data indicates that insiders own less than 1% of Aramark. It is a pretty big company, so it would be possible for board members to own a meaningful interest in the company, without owning much of a proportional interest. In this case, they own around US$28m worth of shares (at current prices). It is always good to see at least some insider ownership, but it might be worth checking if those insiders have been selling.
Next Steps:
While it is well worth considering the different groups that own a company, there are other factors that are even more important. For example, we've discovered 3 warning signs for Aramark (1 is concerning!) that you should be aware of before investing here.
But ultimately it is the future, not the past, that will determine how well the owners of this business will do. Therefore we think it advisable to take a look at this free report showing whether analysts are predicting a brighter 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.
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Simply Wall St analyst Simply Wall St and Simply Wall St have no position in any of the companies mentioned. This article 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.
