Key Insights
- Given the large stake in the stock by institutions, NexPoint Diversified Real Estate Trust's stock price might be vulnerable to their trading decisions
- 51% of the business is held by the top 10 shareholders
- Recent purchases by insiders
If you want to know who really controls NexPoint Diversified Real Estate Trust (NYSE:NXDT), 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 50% ownership. Put another way, the group faces the maximum upside potential (or downside risk).
And things are looking up for institutional investors after the company gained US$25m in market cap last week. One-year return to shareholders is currently 4.9% and last week’s gain was the icing on the cake.
Let's take a closer look to see what the different types of shareholders can tell us about NexPoint Diversified Real Estate Trust.
View our latest analysis for NexPoint Diversified Real Estate Trust
What Does The Institutional Ownership Tell Us About NexPoint Diversified Real Estate Trust?
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.
As you can see, institutional investors have a fair amount of stake in NexPoint Diversified Real Estate Trust. 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. 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 NexPoint Diversified Real Estate Trust, (below). Of course, keep in mind that there are other factors to consider, too.
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 NexPoint Diversified Real Estate Trust. Our data suggests that James Dondero, who is also the company's President, holds the most number of shares at 15%. When an insider holds a sizeable amount of a company's stock, investors consider it as a positive sign because it suggests that insiders are willing to have their wealth tied up in the future of the company. Meanwhile, the second and third largest shareholders, hold 7.2% and 6.1%, of the shares outstanding, respectively.
We did some more digging and found that 10 of the top shareholders account for roughly 51% of the register, implying that along with larger shareholders, there are a few smaller shareholders, thereby balancing out each others interests somewhat.
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. As far as we can tell there isn't analyst coverage of the company, so it is probably flying under the radar.
Insider Ownership Of NexPoint Diversified Real Estate Trust
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.
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 information suggests that insiders maintain a significant holding in NexPoint Diversified Real Estate Trust. It has a market capitalization of just US$242m, and insiders have US$44m worth of shares in their own names. 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
With a 31% ownership, the general public, mostly comprising of individual investors, have some degree of sway over NexPoint Diversified Real Estate Trust. 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. Consider for instance, the ever-present spectre of investment risk. We've identified 4 warning signs with NexPoint Diversified Real Estate Trust (at least 2 which make us uncomfortable) , and understanding them should be part of your investment process.
If you would prefer check out another company -- one with potentially superior financials -- then do not miss this free list of interesting companies, backed by strong financial data.
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.