Key Insights

• Institutions' substantial holdings in Hovnanian Enterprises implies that they have significant influence over the company's share price
• 52% of the business is held by the top 14 shareholders
• Insiders have been selling lately

Every investor in Hovnanian Enterprises, Inc. (NYSE:HOV) should be aware of the most powerful shareholder groups. And the group that holds the biggest piece of the pie are institutions with 57% ownership. In other words, the group stands to gain the most (or lose the most) from their investment into the company.

And things are looking up for institutional investors after the company gained US$132m in market cap last week. The one-year return on investment is currently 201% and last week's gain would have been more than welcomed.

Let's delve deeper into each type of owner of Hovnanian Enterprises, beginning with the chart below.

What Does The Institutional Ownership Tell Us About Hovnanian Enterprises?

Institutions typically measure themselves against a benchmark when reporting to their own investors, so they often become more enthusiastic about a stock once it's included in a major index. We would expect most companies to have some institutions on the register, especially if they are growing.

We can see that Hovnanian Enterprises does have institutional investors; and they hold a good portion of the company's stock. 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. 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 Hovnanian Enterprises' 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. Hovnanian Enterprises is not owned by hedge funds. The company's CEO Ara Hovnanian is the largest shareholder with 13% of shares outstanding. For context, the second largest shareholder holds about 6.4% of the shares outstanding, followed by an ownership of 5.4% by the third-largest shareholder.

A closer look at our ownership figures suggests that the top 14 shareholders have a combined ownership of 52% implying that no single shareholder has a majority.

While studying institutional ownership for a company can add value to your research, it is also a good practice to research analyst recommendations to get a deeper understand of a stock's expected performance. Our information suggests that there isn't any analyst coverage of the stock, so it is probably little known.

Insider Ownership Of Hovnanian Enterprises

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. 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.

Our most recent data indicates that insiders own a reasonable proportion of Hovnanian Enterprises, Inc.. It has a market capitalization of just US$1.3b, and insiders have US$254m worth of shares in their own names. That's quite significant. Most would be pleased to see the board is investing alongside them. You may wish to access this free chart showing recent trading by insiders.

General Public Ownership

With a 21% ownership, the general public, mostly comprising of individual investors, have some degree of sway over Hovnanian Enterprises. 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 Hovnanian Enterprises (at least 1 which makes us a bit uncomfortable) , and understanding them should be part of your investment process.

Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of interesting companies.

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.