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Is Applied Optoelectronics, Inc. (NASDAQ:AAOI) Popular Amongst Insiders?

If you want to know who really controls Applied Optoelectronics, Inc. (NASDAQ:AAOI), then you’ll have to look at the makeup of its share registry. Institutions will often hold stock in bigger companies, and we expect to see insiders owning a noticeable percentage of the smaller ones. Warren Buffett said that he likes “a business with enduring competitive advantages that is run by able and owner-oriented people.” So it’s nice to see some insider ownership, because it may suggest that management is owner-oriented.

Applied Optoelectronics is a smaller company with a market capitalization of US$286m, so it may still be flying under the radar of many institutional investors. In the chart below, we can see that institutions are noticeable on the share registry. Let’s take a closer look to see what the different types of shareholders can tell us about Applied Optoelectronics.

Check out our latest analysis for Applied Optoelectronics

ownership-breakdown

ownership-breakdown

What Does The Institutional Ownership Tell Us About Applied Optoelectronics?

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

earnings-and-revenue-growth

earnings-and-revenue-growth

Investors should note that institutions actually own more than half the company, so they can collectively wield significant power. We note that hedge funds don’t have a meaningful investment in Applied Optoelectronics. Our data shows that BlackRock, Inc. is the largest shareholder with 13% of shares outstanding. Meanwhile, the second and third largest shareholders, hold 6.4% and 3.3%, of the shares outstanding, respectively. Furthermore, CEO Chih-Hsiang Lin is the owner of 2.4% of the company’s shares.

A closer look at our ownership figures suggests that the top 25 shareholders have a combined ownership of 50% 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 plenty of analysts covering the stock, so it might be worth seeing what they are forecasting, too.

Insider Ownership Of Applied Optoelectronics

While the precise definition of an insider can be subjective, almost everyone considers board members to be insiders. The company management answer to the board and the latter should represent the interests of shareholders. Notably, sometimes top-level managers are on the board themselves.

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.

I can report that insiders do own shares in Applied Optoelectronics, Inc.. In their own names, insiders own US$23m worth of stock in the US$286m company. This shows at least some alignment. You can click here to see if those insiders have been buying or selling.

General Public Ownership

The general public holds a 40% stake in Applied Optoelectronics. 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. Consider for instance, the ever-present spectre of investment risk. We’ve identified 4 warning signs with Applied Optoelectronics (at least 1 which makes us a bit uncomfortable) , and understanding them should be part of your investment process.

But ultimately it is the future, not the past, that will determine how well the owners of this business will do. Therefore we think it advisable to take a look at this free report showing whether analysts are predicting a brighter future.

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.

This article by Simply Wall St is general in nature. 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.

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