Key Insights

• Given the large stake in the stock by institutions, Cummins' stock price might be vulnerable to their trading decisions
• A total of 19 investors have a majority stake in the company with 50% ownership
• Insiders have sold recently

To get a sense of who is truly in control of Cummins Inc. (NYSE:CMI), it is important to understand the ownership structure of the business. With 87% stake, institutions possess the maximum shares in the company. In other words, the group stands to gain the most (or lose the most) from their investment into the company.

And last week, institutional investors ended up benefitting the most after the company hit US$48b in market cap. The gains from last week would have further boosted the one-year return to shareholders which currently stand at 48%.

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

View our latest analysis for Cummins

What Does The Institutional Ownership Tell Us About Cummins?

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.

As you can see, institutional investors have a fair amount of stake in Cummins. 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. 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 Cummins' historic earnings and revenue below, but keep in mind there's always more to the story.

Institutional investors own over 50% of the company, so together than can probably strongly influence board decisions. Cummins is not owned by hedge funds. Our data shows that The Vanguard Group, Inc. is the largest shareholder with 12% of shares outstanding. With 8.9% and 4.6% of the shares outstanding respectively, BlackRock, Inc. and State Street Global Advisors, Inc. are the second and third largest shareholders.

After doing some more digging, we found that the top 19 have the combined ownership of 50% in the company, suggesting that no single shareholder has significant control over the company.

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 Cummins

While the precise definition of an insider can be subjective, almost everyone considers board members to be insiders. Company management run the business, but the CEO will answer to the board, even if he or she is a member of it.

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 less than 1% of Cummins Inc.. Being so large, we would not expect insiders to own a large proportion of the stock. Collectively, they own US$202m of stock. Arguably recent buying and selling is just as important to consider. You can click here to see if insiders have been buying or selling.

General Public Ownership

With a 13% ownership, the general public, mostly comprising of individual investors, have some degree of sway over Cummins. 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. Consider for instance, the ever-present spectre of investment risk. We've identified 5 warning signs with Cummins (at least 2 which don't sit too well with us) , and understanding them should be part of your investment process.

Ultimately the future is most important. You can access this free report on analyst forecasts for the company.

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.