The large shareholder groups of Cummins Inc. (NYSE: CMI) have power over the company. Generally speaking, as a company grows, institutions increase their ownership. Conversely, insiders often decrease their ownership over time. Companies that were previously publicly owned tend to have less insider ownership.
Cummins has a market cap of US$32 billion, so it’s too big to fly under the radar. We expect institutions and retail investors to own part of the business. Our analysis of societal ownership below shows that institutions own shares in society. We can zoom in on the different ownership groups, to learn more about Cummins.
What does institutional ownership tell us about Cummins?
Institutions typically measure themselves against a benchmark when reporting to their own investors, so they often become more enthusiastic about a stock once it is included in a major index. We would expect most companies to have some institutions listed, especially if they are growing.
We can see that Cummins has institutional investors; and they own a good part of the shares of the company. This implies that analysts working for these institutions have reviewed the stock and like it. But like everyone else, they can be wrong. It is not uncommon to see a sharp decline in the stock price if two large institutional investors attempt to sell a stock at the same time. So it’s worth checking out Cummins’ past earnings trajectory (below). Of course, keep in mind that there are other factors to consider as well.
Since institutional investors own more than half of the issued shares, the board will likely have to pay attention to their preferences. We note that hedge funds have no significant investment in Cummins. The company’s largest shareholder is The Vanguard Group, Inc., with a 9.0% stake. For context, the second shareholder owns approximately 8.3% of the outstanding shares, followed by a 4.7% ownership by the third shareholder.
Looking at our ownership data, we found that 25 of the major shareholders collectively own less than 50% of the share register, implying that no single individual holds a majority stake.
While studying the institutional ownership of a company can add value to your research, it is also recommended that you research analyst recommendations to better understand a stock’s expected performance. There are a reasonable number of analysts covering the stock, so it can be useful to know their overall view on the future.
Cummins Insider Ownership
The definition of an insider may differ slightly from country to country, but board members still matter. Management is ultimately responsible to the board of directors. However, it is not uncommon for managers to be members of the management board, especially if they are founders or CEOs.
I generally consider insider ownership to be a good thing. However, there are times when it is more difficult for other shareholders to hold the board accountable for decisions.
Our information suggests that insiders of Cummins Inc. own less than 1% of the company. It’s a very big company, so it would be surprising to see insiders owning much of the company. Although their stake is less than 1%, we can see that the board members collectively own $137 million worth of shares (at today’s prices). It’s always good to see at least some insider ownership, but it might be worth checking to see if those insiders have sold.
General public property
The general public, who are usually individual investors, hold a 16% stake in Cummins. While that size of ownership might not be enough to sway a policy decision in their favor, they can still have a collective impact on company policies.
I find it very interesting to see who exactly owns a company. But to really get insight, we also need to consider other information. Know that Cummins shows 1 warning sign in our investment analysis you should know…
But finally it’s the future, not the past, that will determine the success of the owners of this business. Therefore, we think it’s advisable to take a look at this free report showing whether analysts are predicting a brighter future.
NB: The figures in this article are calculated using trailing twelve month data, which refers to the 12 month period ending on the last day of the month the financial statements are dated. This may not be consistent with the annual report figures for the full year.
Feedback on this article? Concerned about content? Get in touch with us directly. You can also email the editorial team (at) Simplywallst.com.
This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials. Simply Wall St has no position in the stocks mentioned.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.