A look at the shareholders of Lexicon Pharmaceuticals, Inc. (NASDAQ:LXRX) can tell us which group is most powerful. And the group that holds the biggest piece of the pie are private equity firms with 48% ownership. Put another way, the group faces the maximum upside potential (or downside risk).

Meanwhile, institutions make up 26% of the company’s shareholders. Generally speaking, as a company grows, institutions will increase their ownership. Conversely, insiders often decrease their ownership over time.

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

See our latest analysis for Lexicon Pharmaceuticals

What Does The Institutional Ownership Tell Us About Lexicon Pharmaceuticals?

Institutional investors commonly compare their own returns to the returns of a commonly followed index. So they generally do consider buying larger companies that are included in the relevant benchmark index.

Lexicon Pharmaceuticals already has institutions on the share registry. Indeed, they own a respectable stake in the company. 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 Lexicon Pharmaceuticals' historic earnings and revenue below, but keep in mind there's always more to the story.

It looks like hedge funds own 8.6% of Lexicon Pharmaceuticals shares. That worth noting, since hedge funds are often quite active investors, who may try to influence management. Many want to see value creation (and a higher share price) in the short term or medium term. The company's largest shareholder is Artal Group S.A., with ownership of 48%. Meanwhile, the second and third largest shareholders, hold 8.6% and 3.1%, of the shares outstanding, respectively.

After doing some more digging, we found that the top 2 shareholders collectively control more than half of the company's shares, implying that they have considerable power to influence the company's decisions.

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 Lexicon Pharmaceuticals

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.

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 some shares in Lexicon Pharmaceuticals, Inc.. As individuals, the insiders collectively own US$4.2m worth of the US$423m company. Some would say this shows alignment of interests between shareholders and the board. But it might be worth checking if those insiders have been selling.

General Public Ownership

The general public, who are usually individual investors, hold a 17% stake in Lexicon Pharmaceuticals. 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.

Private Equity Ownership

Private equity firms hold a 48% stake in Lexicon Pharmaceuticals. This suggests they can be influential in key policy decisions. Some investors might be encouraged by this, since private equity are sometimes able to encourage strategies that help the market see the value in the company. Alternatively, those holders might be exiting the investment after taking it public.

Next Steps:

It's always worth thinking about the different groups who own shares in a company. But to understand Lexicon Pharmaceuticals better, we need to consider many other factors. For example, we've discovered 3 warning signs for Lexicon Pharmaceuticals (1 is significant!) that you should be aware of before investing here.

If you would prefer discover what analysts are predicting in terms of future growth, do not miss this free report on analyst forecasts.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.

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