Key Insights

• Given the large stake in the stock by institutions, Hovnanian Enterprises' stock price might be vulnerable to their trading decisions
• 51% of the business is held by the top 14 shareholders
• Recent sales by insiders

To get a sense of who is truly in control of Hovnanian Enterprises, Inc. (NYSE:HOV), it is important to understand the ownership structure of the business. We can see that institutions own the lion's share in the company with 62% ownership. Put another way, the group faces the maximum upside potential (or downside risk).

Institutional investors was the group most impacted after the company's market cap fell to US$1.0b last week. However, the 21% one-year returns may have helped alleviate their overall losses. They should, however, be mindful of further losses in the future.

Let's take a closer look to see what the different types of shareholders can tell us about Hovnanian Enterprises.

Check out our latest analysis for Hovnanian Enterprises

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.

Hovnanian Enterprises already has institutions on the share registry. Indeed, they own a respectable stake in the company. This can indicate that the company has a certain degree of credibility in the investment community. However, it is best to be wary of relying on the supposed validation that comes with institutional investors. They too, get it wrong sometimes. 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 Hovnanian Enterprises' earnings history below. Of course, the future is what really matters.

Institutional investors own over 50% of the company, so together than can probably strongly influence board decisions. Hedge funds don't have many shares in Hovnanian Enterprises. Looking at our data, we can see that the largest shareholder is the CEO Ara Hovnanian with 13% of shares outstanding. With 6.7% and 5.5% of the shares outstanding respectively, BlackRock, Inc. and The Vanguard Group, Inc. are the second and third largest shareholders.

Looking at the shareholder registry, we can see that 51% of the ownership is controlled by the top 14 shareholders, meaning that no single shareholder has a majority interest in the ownership.

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. As far as we can tell there isn't analyst coverage of the company, so it is probably flying under the radar.

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. 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 Hovnanian Enterprises, Inc.. Insiders own US$207m worth of shares in the US$1.0b company. That's quite meaningful. Most would say this shows a good degree of alignment with shareholders, especially in a company of this size. You can click here to see if those insiders have been buying or selling.

General Public Ownership

The general public, who are usually individual investors, hold a 16% stake in Hovnanian Enterprises. While this group can't necessarily call the shots, it can certainly have a real influence on how the company is run.

Next Steps:

I find it very interesting to look at who exactly owns a company. But to truly gain insight, we need to consider other information, too. Consider for instance, the ever-present spectre of investment risk. We've identified 2 warning signs with Hovnanian Enterprises (at least 1 which is concerning) , and understanding them should be part of your investment process.

If you would prefer check out another company -- one with potentially superior financials -- then do not miss this free list of interesting companies, backed by strong financial data.

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.