Individual investors who have a significant stake must be disappointed along with institutions after The Honest Company, Inc.’s (NASDAQ:HNST) market cap dropped by US$17m

Key Insights

• Significant control over Honest Company by individual investors implies that the general public has more power to influence management and governance-related decisions
• 51% of the business is held by the top 11 shareholders
• Insiders have sold recently

If you want to know who really controls The Honest Company, Inc. (NASDAQ:HNST), then you’ll have to look at the makeup of its share registry. With 37% stake, individual investors possess the maximum shares in the company. Put another way, the group faces the maximum upside potential (or downside risk).

While institutions, who own 26% shares weren’t spared from last week’s US$17m market cap drop, individual investors as a group suffered the maximum losses

Let’s take a closer look to see what the different types of shareholders can tell us about Honest Company.

See our latest analysis for Honest Company

What Does The Institutional Ownership Tell Us About Honest Company?

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 Honest Company does have institutional investors; and they hold a good portion of the company’s stock. 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 Honest Company’s historic earnings and revenue below, but keep in mind there’s always more to the story.

Our data indicates that hedge funds own 5.6% of Honest Company. 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. L Catterton Partners is currently the largest shareholder, with 13% of shares outstanding. Meanwhile, the second and third largest shareholders, hold 11% and 5.6%, of the shares outstanding, respectively.

A closer look at our ownership figures suggests that the top 11 shareholders have a combined ownership of 51% implying that no single shareholder has a majority.

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 Honest Company

The definition of an insider can differ slightly between different countries, but members of the board of directors always count. 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.

Our most recent data indicates that insiders own some shares in The Honest Company, Inc.. As individuals, the insiders collectively own US$10m worth of the US$149m company. It is good to see some investment by insiders, but we usually like to see higher insider holdings. It might be worth checking if those insiders have been buying.

General Public Ownership

With a 37% ownership, the general public, mostly comprising of individual investors, have some degree of sway over Honest Company. 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

With a stake of 24%, private equity firms could influence the Honest Company board. Some investors might be encouraged by this, since private equity are sometimes able to encourage strategies that help the market see the value in the company. Alternatively, those holders might be exiting the investment after taking it public.

Next Steps:

It’s always worth thinking about the different groups who own shares in a company. But to understand Honest Company better, we need to consider many other factors. Be aware that Honest Company is showing 4 warning signs in our investment analysis , you should know about…

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. 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.