Key Insights

• Given the large stake in the stock by institutions, Preferred Bank's stock price might be vulnerable to their trading decisions
• 51% of the business is held by the top 10 shareholders
• Recent sales by insiders

Every investor in Preferred Bank (NASDAQ:PFBC) should be aware of the most powerful shareholder groups. We can see that institutions own the lion's share in the company with 82% ownership. In other words, the group stands to gain the most (or lose the most) from their investment into the company.

No shareholder likes losing money on their investments, especially institutional investors who saw their holdings drop 5.4% in value last week. However, the 67% one-year return to shareholders might have softened the blow. We would assume however, that they would be on the lookout for weakness in the future.

In the chart below, we zoom in on the different ownership groups of Preferred Bank.

What Does The Institutional Ownership Tell Us About Preferred Bank?

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 Preferred Bank 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. If multiple institutions change their view on a stock at the same time, you could see the share price drop fast. It's therefore worth looking at Preferred Bank's earnings history below. Of course, the future is what really matters.

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 Preferred Bank. BlackRock, Inc. is currently the largest shareholder, with 9.9% of shares outstanding. With 8.2% and 6.5% of the shares outstanding respectively, T. Rowe Price Group, Inc. and The Vanguard Group, Inc. are the second and third largest shareholders. Furthermore, CEO Li Yu is the owner of 5.2% of the company's shares.

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. There are plenty of analysts covering the stock, so it might be worth seeing what they are forecasting, too.

Insider Ownership Of Preferred Bank

The definition of an insider can differ slightly between different countries, but members of the board of directors always count. Company management run the business, but the CEO will answer to the board, even if he or she is a member of it.

I generally consider insider ownership to be a good thing. However, on some occasions it makes it more difficult for other shareholders to hold the board accountable for decisions.

Shareholders would probably be interested to learn that insiders own shares in Preferred Bank. It is a pretty big company, so it is generally a positive to see some potentially meaningful alignment. In this case, they own around US$76m worth of shares (at current prices). Most would say this shows alignment of interests between shareholders and the board. Still, it might be worth checking if those insiders have been selling.

General Public Ownership

The general public-- including retail investors -- own 10% stake in the company, and hence can't easily be ignored. While this size of ownership may not be enough to sway a policy decision in their favour, they can still make a collective impact on company policies.

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 2 warning signs with Preferred Bank (at least 1 which makes us a bit uncomfortable) , and understanding them should be part of your investment process.

If you would prefer discover what analysts are predicting in terms of future growth, do not miss this free report on analyst forecasts.

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.