Key Insights

• Significantly high institutional ownership implies Caterpillar's stock price is sensitive to their trading actions
• 50% of the business is held by the top 24 shareholders
• Insiders have sold recently

To get a sense of who is truly in control of Caterpillar Inc. (NYSE:CAT), 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 72% ownership. Put another way, the group faces the maximum upside potential (or downside risk).

Last week’s 3.5% gain means that institutional investors were on the positive end of the spectrum even as the company has shown strong longer-term trends. The one-year return on investment is currently 35% and last week's gain would have been more than welcomed.

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

Check out our latest analysis for Caterpillar

What Does The Institutional Ownership Tell Us About Caterpillar?

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 Caterpillar does have institutional investors; and they hold a good portion of the company's stock. 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. It is not uncommon to see a big share price drop if two large institutional investors try to sell out of a stock at the same time. So it is worth checking the past earnings trajectory of Caterpillar, (below). Of course, keep in mind that there are other factors to consider, too.

Institutional investors own over 50% of the company, so together than can probably strongly influence board decisions. We note that hedge funds don't have a meaningful investment in Caterpillar. The Vanguard Group, Inc. is currently the largest shareholder, with 9.7% of shares outstanding. Meanwhile, the second and third largest shareholders, hold 7.6% and 6.7%, of the shares outstanding, respectively.

After doing some more digging, we found that the top 24 have the combined ownership of 50% in the company, suggesting that no single shareholder has significant control over the company.

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. There are a reasonable number of analysts covering the stock, so it might be useful to find out their aggregate view on the future.

Insider Ownership Of Caterpillar

The definition of an insider can differ slightly between different countries, but members of the board of directors always count. 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.

Our data suggests that insiders own under 1% of Caterpillar Inc. in their own names. As it is a large company, we'd only expect insiders to own a small percentage of it. But it's worth noting that they own US$312m worth of shares. It is good to see board members owning shares, but it might be worth checking if those insiders have been buying.

General Public Ownership

With a 28% ownership, the general public, mostly comprising of individual investors, have some degree of sway over Caterpillar. 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:

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. For instance, we've identified 2 warning signs for Caterpillar that you should be aware of.

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. 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.