In the wake of The Children's Place, Inc.'s (NASDAQ:PLCE) latest US$37m market cap drop, institutional owners may be forced to take severe actions
In This Article:
Key Insights
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Significantly high institutional ownership implies Children's Place's stock price is sensitive to their trading actions
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55% of the company is held by a single shareholder (Mithaq Capital)
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Past performance of a company along with ownership data serve to give a strong idea about prospects for a business
To get a sense of who is truly in control of The Children's Place, Inc. (NASDAQ:PLCE), it is important to understand the ownership structure of the business. With 83% stake, institutions possess the maximum shares in the company. In other words, the group stands to gain the most (or lose the most) from their investment into the company.
And so it follows that institutional investors was the group most impacted after the company's market cap fell to US$142m last week after a 21% drop in the share price. Needless to say, the recent loss which further adds to the one-year loss to shareholders of 60% might not go down well especially with this category of shareholders. Institutions or "liquidity providers" control large sums of money and therefore, these types of investors usually have a lot of influence over stock price movements. As a result, if the decline continues, institutional investors may be pressured to sell Children's Place which might hurt individual investors.
In the chart below, we zoom in on the different ownership groups of Children's Place.
Check out our latest analysis for Children's Place
What Does The Institutional Ownership Tell Us About Children's Place?
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.
As you can see, institutional investors have a fair amount of stake in Children's Place. 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 Children's Place, (below). Of course, keep in mind that there are other factors to consider, too.
Since institutional investors own more than half the issued stock, the board will likely have to pay attention to their preferences. Hedge funds don't have many shares in Children's Place. Mithaq Capital is currently the company's largest shareholder with 55% of shares outstanding. This essentially means that they have extensive influence, if not outright control, over the future of the corporation. In comparison, the second and third largest shareholders hold about 3.1% and 2.9% of the stock.