Southwest Airlines Co.’s (NYSE:LUV) latest 5.5% decline adds to one-year losses, institutional investors may consider drastic measures

Important Findings

  • The sizeable institutional holdings in Southwest Airlines imply that they have a significant impact on the company’s share price
  • A total of 13 investors hold a majority stake of 51% in the company
  • Data from analyst forecasts and ownership research can be used to better assess a company’s future performance

To get a sense of who’s really in control of Southwest Airlines Co. (NYSE:LUV), it’s important to understand the company’s ownership structure. The group with the most shares in the company, around 77%, are institutions. In other words, the group will gain the most (or lose the most) from their investment in the company.

It follows that institutional investors were the hardest-hit group after the company’s market cap fell to $20 billion last week after a 5.5% drop in its share price. This group of investors may be particularly concerned about the current loss, which adds to a 23% year-on-year loss for shareholders. Institutions or “liquidity providers” control large sums of money and therefore these types of investors usually have a large influence on stock price movements. Therefore, if the decline continues, institutional investors could be pressured to sell Southwest Airlines, which could hurt individual investors.

Let’s take a closer look at what the different types of shareholders can tell us about Southwest Airlines.

Check out our latest analysis for Southwest Airlines

NYSE:LUV ownership breakdown February 22, 2023

What Does Institutional Ownership Tell Us About Southwest Airlines?

Institutional investors typically compare their own returns to the returns of a commonly tracked index. As such, they typically consider buying larger companies that are included in the relevant benchmark index.

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We can see that Southwest Airlines has institutional investors; and they hold a good portion of the company’s stock. This may indicate that the company has a certain level of credibility in the investor community. However, it’s best not to rely on the supposed confirmation that comes from institutional investors. They too are sometimes wrong. It’s not uncommon for the stock price to fall sharply when two large institutional investors attempt to sell a stock at the same time. So, it’s worth reviewing Southwest Airlines’ past earnings performance (below). Of course, keep in mind that there are other factors to consider as well.

NYSE:LUV earnings and revenue growth February 22, 2023

With institutional investors owning more than half of the outstanding shares, the board likely needs to be mindful of their preferences. We find that hedge funds have no meaningful investment in Southwest Airlines. Looking at our data, we can see that the largest shareholder is The Vanguard Group, Inc. with 11% of outstanding shares. PRIMECAP Management Company is the second-largest shareholder with 8.8% of the common stock, and State Street Global Advisors, Inc. owns about 6.7% of the company’s stock.

If we look at the register of shareholders, we can see that 51% of ownership is controlled by the 13 largest shareholders, meaning that no single shareholder has a controlling interest in the property.

While examining a company’s institutional ownership can add value to your research, it’s also a good practice to research analyst recommendations to gain a deeper understanding of a stock’s expected performance. There are many analysts covering the stock, so it might be worth seeing what they’re forecasting as well.

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Insider ownership of Southwest Airlines

The definition of corporate insider can be subjective and varies by jurisdiction. Our data reflects individual insiders and captures at least board members. The management of the company is accountable to the board of directors, which should represent the interests of the shareholders. It is noteworthy that sometimes high-ranking managers themselves sit on the board.

Insider ownership is positive when it signals leadership thinks like the true owners of the company. However, a high proportion of insiders can give immense power to even a small group within the organization. This can sometimes be negative.

Our information suggests that Southwest Airlines Co. insiders own less than 1% of the company. Because it’s so big, we wouldn’t expect insiders to own a large chunk of the stock. Together, they own $68 million worth of stock. It’s good to see board members own shares, but it might be worth checking to see if those insiders bought.

General Public Property

With 23% ownership, the general public, made up mostly of individual investors, has some influence over Southwest Airlines. While this group may not necessarily be in charge, it certainly can have a real impact on how the company is run.

Next Steps:

It’s always worth thinking about the different groups that own shares in a company. But to better understand Southwest Airlines, we need to consider many other factors. For example, we discovered 3 Southwest Airlines Warning Signs you should know before you invest here.

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

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Note: The figures in this article are calculated using data for the last twelve months, relating to the 12-month period ending on the last date of the month to which the financial statements are dated. This may not tally with the annual report figures for the full year.

The assessment is complex, but we help to simplify it.

Find out if Southwest Airlines might be over or under priced by checking out our comprehensive analysis which includes the following Fair Value Estimates, Risks and Warnings, Dividends, Insider Trading and Financial Health.

Check out the free analysis

This Simply Wall St article is of a general nature. We provide comments based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended as financial advice. It is not a recommendation to buy or sell any stock and does not take into account your goals or financial situation. Our goal is to offer you long-term focused analysis based on fundamental data. Note that our analysis may not take into account the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any of the stocks mentioned.


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