The Cato Corporation's (NYSE:CATO) recent 10% pullback adds to one-year year losses, institutional owners may take drastic measures

Simply Wall St · 07/01 10:24

Key Insights

  • Given the large stake in the stock by institutions, Cato's stock price might be vulnerable to their trading decisions
  • A total of 10 investors have a majority stake in the company with 50% ownership
  • Insiders own 20% of Cato

Every investor in The Cato Corporation (NYSE:CATO) should be aware of the most powerful shareholder groups. The group holding the most number of shares in the company, around 50% to be precise, is institutions. Put another way, the group faces the maximum upside potential (or downside risk).

As a result, institutional investors endured the highest losses last week after market cap fell by US$12m. The recent loss, which adds to a one-year loss of 24% for stockholders, may not sit well with this group of investors. Often called “market movers", institutions wield significant power in influencing the price dynamics of any stock. As a result, if the decline continues, institutional investors may be pressured to sell Cato which might hurt individual investors.

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

Check out our latest analysis for Cato

ownership-breakdown
NYSE:CATO Ownership Breakdown July 1st 2024

What Does The Institutional Ownership Tell Us About Cato?

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.

We can see that Cato 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. 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 Cato, (below). Of course, keep in mind that there are other factors to consider, too.

earnings-and-revenue-growth
NYSE:CATO Earnings and Revenue Growth July 1st 2024

We note that hedge funds don't have a meaningful investment in Cato. The company's CEO John P. Cato is the largest shareholder with 16% of shares outstanding. For context, the second largest shareholder holds about 7.6% of the shares outstanding, followed by an ownership of 5.8% by the third-largest shareholder.

On further inspection, we found that more than half the company's shares are owned by the top 10 shareholders, suggesting that the interests of the larger shareholders are balanced out to an extent by the smaller ones.

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. Our information suggests that there isn't any analyst coverage of the stock, so it is probably little known.

Insider Ownership Of Cato

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.

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 a reasonable proportion of The Cato Corporation. Insiders have a US$21m stake in this US$107m business. We 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, who are usually individual investors, hold a 30% stake in Cato. While this group can't necessarily call the shots, it can certainly have a real influence on how the company is run.

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 2 warning signs with Cato , and understanding them should be part of your investment process.

Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of interesting companies.

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.