Institutional investors may overlook Salesforce, Inc.’s (NYSE:CRM) recent US$14b market cap drop as long-term gains remain positive
Key Insights
-
Significantly high institutional ownership implies Salesforce’s stock price is sensitive to their trading actions
-
The top 25 shareholders own 50% of the company
If you want to know who really controls Salesforce, Inc. (NYSE:CRM), then you’ll have to look at the makeup of its share registry. We can see that institutions own the lion’s share in the company with 83% ownership. Put another way, the group faces the maximum upside potential (or downside risk).
Losing money on investments is something no shareholder enjoys, least of all institutional investors who saw their holdings value drop by 4.9% last week. Still, the 23% one-year gains may have helped mitigate their overall losses. We would assume however, that they would be on the lookout for weakness in the future.
Let’s delve deeper into each type of owner of Salesforce, beginning with the chart below.
View our latest analysis for Salesforce
What Does The Institutional Ownership Tell Us About Salesforce?
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.
Salesforce already has institutions on the share registry. Indeed, they own a respectable stake in 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 Salesforce’s historic earnings and revenue below, but keep in mind there’s always more to the story.
Investors should note that institutions actually own more than half the company, so they can collectively wield significant power. Salesforce is not owned by hedge funds. Looking at our data, we can see that the largest shareholder is The Vanguard Group, Inc. with 8.7% of shares outstanding. In comparison, the second and third largest shareholders hold about 7.5% and 4.8% of the stock. Furthermore, CEO Marc Benioff is the owner of 2.3% of the company’s shares.
Looking at the shareholder registry, we can see that 50% of the ownership is controlled by the top 25 shareholders, meaning that no single shareholder has a majority interest in the ownership.
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. 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 Salesforce
While the precise definition of an insider can be subjective, almost everyone considers board members to be insiders. 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.
We can see that insiders own shares in Salesforce, Inc.. The insiders have a meaningful stake worth US$7.1b. we sometimes take an interest in whether they have been buying or selling.
General Public Ownership
With a 15% ownership, the general public, mostly comprising of individual investors, have some degree of sway over Salesforce. 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. For instance, we’ve identified 2 warning signs for Salesforce that you should be aware of.
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.
