Key Insights

• Given the large stake in the stock by institutions, Red Violet's stock price might be vulnerable to their trading decisions
• 53% of the business is held by the top 9 shareholders
• Insider ownership in Red Violet is 17%

A look at the shareholders of Red Violet, Inc. (NASDAQ:RDVT) can tell us which group is most powerful. The group holding the most number of shares in the company, around 50% to be precise, is institutions. In other words, the group stands to gain the most (or lose the most) from their investment into the company.

And as as result, institutional investors reaped the most rewards after the company's stock price gained 13% last week. One-year return to shareholders is currently 88% and last week’s gain was the icing on the cake.

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

View our latest analysis for Red Violet

What Does The Institutional Ownership Tell Us About Red Violet?

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 Red Violet. This implies the analysts working for those institutions have looked at the stock and they like it. But just like anyone else, they could be wrong. 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 Red Violet's historic earnings and revenue below, but keep in mind there's always more to the story.

Since institutional investors own more than half the issued stock, the board will likely have to pay attention to their preferences. Our data indicates that hedge funds own 14% of Red Violet. That catches my attention because hedge funds sometimes try to influence management, or bring about changes that will create near term value for shareholders. Looking at our data, we can see that the largest shareholder is Trigran Investments, Inc. with 14% of shares outstanding. With 7.0% and 6.7% of the shares outstanding respectively, Michael Brauser and BlackRock, Inc. are the second and third largest shareholders. Additionally, the company's CEO Derek Dubner directly holds 3.8% of the total shares outstanding.

We did some more digging and found that 9 of the top shareholders account for roughly 53% of the register, implying that along with larger shareholders, there are a few smaller shareholders, thereby balancing out each others interests somewhat.

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. While there is some analyst coverage, the company is probably not widely covered. So it could gain more attention, down the track.

Insider Ownership Of Red Violet

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.

Insider ownership is positive when it signals leadership are thinking like the true owners of the company. However, high insider ownership can also give immense power to a small group within the company. This can be negative in some circumstances.

Our most recent data indicates that insiders own a reasonable proportion of Red Violet, Inc.. It has a market capitalization of just US$526m, and insiders have US$89m worth of shares in their own names. It is great to see insiders so invested in the business. It might be worth checking if those insiders have been buying recently.

General Public Ownership

The general public, who are usually individual investors, hold a 19% stake in Red Violet. 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:

While it is well worth considering the different groups that own a company, there are other factors that are even more important. Case in point: We've spotted 1 warning sign for Red Violet you should be aware of.

Ultimately the future is most important. You can access this free report on analyst forecasts for the company.

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.