The big shareholder groups in Nitro Software Limited (ASX:NTO) have power over the company. Large companies usually have institutions as shareholders, and we usually see insiders owning shares in smaller companies. I quite like to see at least a little bit of insider ownership. As Charlie Munger said ‘Show me the incentive and I will show you the outcome.

Nitro Software is a smaller company with a market capitalization of AU$284m, so it may still be flying under the radar of many institutional investors. Taking a look at our data on the ownership groups (below), it’s seems that institutions own shares in the company. Let’s delve deeper into each type of owner, to discover more about Nitro Software.

Check out our latest analysis for Nitro Software

ASX:NTO Ownership Summary June 29th 2020

What Does The Institutional Ownership Tell Us About Nitro Software?

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.

Nitro Software already has institutions on the share registry. Indeed, they own 17% of 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. 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 Nitro Software’s historic earnings and revenue, below, but keep in mind there’s always more to the story.

ASX:NTO Income Statement June 29th 2020
ASX:NTO Income Statement June 29th 2020

It would appear that 6.7% of Nitro Software shares are controlled by hedge funds. That worth noting, since hedge funds are often quite active investors, who may try to influence management. Many want to see value creation (and a higher share price) in the short term or medium term. The company’s largest shareholder is Starfish Ventures Pty Ltd, with ownership of 14%, The second and third largest shareholders are Battery Ventures and Vistra Holdings S.à r.l., Asset Management Arm, holding 13% and 6.8%, respectively.

On further inspection, we found that 52% of the share register is owned by the top 6 shareholders, suggesting that the interests of the larger shareholders are balanced out to an extent by the smaller ones.

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 is some analyst coverage of the stock, but it could still become more well known, with time.

Insider Ownership Of Nitro Software

The definition of company insiders can be subjective, and does vary between jurisdictions. Our data reflects individual insiders, capturing board members at the very least. 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 a reasonable proportion of Nitro Software Limited. Insiders have a AU$44m stake in this AU$284m business. I would say this shows alignment with shareholders, but it is worth noting that the company is still quite small; some insiders may have founded the business. You can click here to see if those insiders have been buying or selling.

General Public Ownership

The general public holds a 29% stake in NTO. While this group can’t necessarily call the shots, it can certainly have a real influence on how the company is run.

Private Equity Ownership

Private equity firms hold a 27% stake in NTO. This suggests they can be influential in key policy decisions. Some might like this, because private equity are sometimes activists who hold management accountable. But other times, private equity is selling out, having taking the company public.

Private Company Ownership

It seems that Private Companies own 4.8%, of the NTO stock. It’s hard to draw any conclusions from this fact alone, so its worth looking into who owns those private companies. Sometimes insiders or other related parties have an interest in shares in a public company through a separate private company.

Next Steps:

It’s always worth thinking about the different groups who own shares in a company. But to understand Nitro Software better, we need to consider many other factors. Consider for instance, the ever-present spectre of investment risk. We’ve identified 1 warning sign with Nitro Software , and understanding them should be part of your investment process.

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. 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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