In the wake of APA Corporation's (NASDAQ:APA) latest US$730m market cap drop, institutional owners may be forced to take severe actions

Simply Wall St · 11/13/2023 10:51

Key Insights

  • Institutions' substantial holdings in APA implies that they have significant influence over the company's share price
  • 50% of the business is held by the top 12 shareholders
  • Using data from analyst forecasts alongside ownership research, one can better assess the future performance of a company

If you want to know who really controls APA Corporation (NASDAQ:APA), then you'll have to look at the makeup of its share registry. The group holding the most number of shares in the company, around 76% 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).

As a result, institutional investors endured the highest losses last week after market cap fell by US$730m. The recent loss, which adds to a one-year loss of 20% 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. Hence, if weakness in APA's share price continues, institutional investors may feel compelled to sell the stock, which might not be ideal for individual investors.

In the chart below, we zoom in on the different ownership groups of APA.

See our latest analysis for APA

ownership-breakdown
NasdaqGS:APA Ownership Breakdown November 13th 2023

What Does The Institutional Ownership Tell Us About APA?

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.

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

earnings-and-revenue-growth
NasdaqGS:APA Earnings and Revenue Growth November 13th 2023

Investors should note that institutions actually own more than half the company, so they can collectively wield significant power. Our data indicates that hedge funds own 6.1% of APA. That's interesting, because hedge funds can be quite active and activist. Many look for medium term catalysts that will drive the share price higher. The Vanguard Group, Inc. is currently the largest shareholder, with 13% of shares outstanding. BlackRock, Inc. is the second largest shareholder owning 7.9% of common stock, and State Street Global Advisors, Inc. holds about 6.7% of the company stock.

Looking at the shareholder registry, we can see that 50% of the ownership is controlled by the top 12 shareholders, meaning that no single shareholder has a majority interest in the ownership.

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 are plenty of analysts covering the stock, so it might be worth seeing what they are forecasting, too.

Insider Ownership Of APA

The definition of an insider can differ slightly between different countries, but members of the board of directors always count. 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 APA Corporation. It is a very large company, so it would be surprising to see insiders own a large proportion of the company. Though their holding amounts to less than 1%, we can see that board members collectively own US$55m 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.

General Public Ownership

With a 17% ownership, the general public, mostly comprising of individual investors, have some degree of sway over APA. While this size of ownership may not be enough to sway a policy decision in their favour, they can still make a collective impact on company policies.

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 APA , 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.