With 61% institutional ownership, International Business Machines Corporation (NYSE:IBM) is a favorite amongst the big guns

Key Insights

• Given the large stake in the stock by institutions, International Business Machines’ stock price might be vulnerable to their trading decisions

• The top 25 shareholders own 40% of the company

• 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 International Business Machines Corporation (NYSE:IBM), 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 61% ownership. Put another way, the group faces the maximum upside potential (or downside risk).

Since institutional have access to huge amounts of capital, their market moves tend to receive a lot of scrutiny by retail or individual investors. Therefore, a good portion of institutional money invested in the company is usually a huge vote of confidence on its future.

In the chart below, we zoom in on the different ownership groups of International Business Machines.

View our latest analysis for International Business Machines

What Does The Institutional Ownership Tell Us About International Business Machines?

Many institutions measure their performance against an index that approximates the local market. So they usually pay more attention to companies that are included in major indices.

International Business Machines already has institutions on the share registry. Indeed, they own a respectable stake in the company. 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. 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 International Business Machines’ historic earnings and revenue below, but keep in mind there’s always more to the story.

Institutional investors own over 50% of the company, so together than can probably strongly influence board decisions. We note that hedge funds don’t have a meaningful investment in International Business Machines. The Vanguard Group, Inc. is currently the largest shareholder, with 9.7% of shares outstanding. For context, the second largest shareholder holds about 8.2% of the shares outstanding, followed by an ownership of 5.9% by the third-largest shareholder.

Our studies suggest that the top 25 shareholders collectively control less than half of the company’s shares, meaning that the company’s shares are widely disseminated and there is no dominant shareholder.

While studying institutional ownership for a company can add value to your research, it is also a good practice to research analyst recommendations to get a deeper understand of a stock’s expected performance. There are plenty of analysts covering the stock, so it might be worth seeing what they are forecasting, too.

Insider Ownership Of International Business Machines

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 information suggests that International Business Machines Corporation insiders own under 1% of the company. As it is a large company, we’d only expect insiders to own a small percentage of it. But it’s worth noting that they own US$177m worth of shares. In this sort of situation, it can be more interesting to see if those insiders have been buying or selling.

General Public Ownership

The general public– including retail investors — own 38% stake in the company, and hence can’t easily be ignored. 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:

While it is well worth considering the different groups that own a company, there are other factors that are even more important. Consider risks, for instance. Every company has them, and we’ve spotted 1 warning sign for International Business Machines you should know about.

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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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.