Applied Digital Corporation’s Provides Impressive Long-Term Returns for Shareholders

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Written By Dean McHugh

Applied Digital Corporation (NASDAQ: APLD) has experienced fluctuations in its stock price recently, highlighting the vulnerability of the stock to trading decisions by large stakeholders.

Despite this short-term setback, the company has provided impressive long-term returns, with a 221% increase over the past year.

This analysis will delve into the ownership structure of Applied Digital, examining the implications for the company’s stock price and future performance.

Institutional Ownership

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Institutional investors are significant players in Applied Digital, owning 47% of the company’s stock.

This high level of institutional ownership suggests that these investors have confidence in the company’s prospects. Typically, institutions like mutual funds, pension funds, and insurance companies have rigorous due diligence processes, which implies that their analysts see potential in Applied Digital.

However, heavy institutional ownership also comes with risks. When multiple institutions hold large positions in a stock, there is a risk of a “crowded trade.” If the stock starts to perform poorly, these institutions might rush to sell their shares, leading to a rapid decline in the stock price.

This phenomenon can exacerbate losses, particularly for companies without a long history of growth or stability.

Institutional Influence

Institutional investors often measure their performance against benchmarks and may become more enthusiastic about a stock once it is included in a major index. This can lead to increased buying and higher stock prices.

Conversely, if institutional investors lose confidence or need to reallocate their portfolios, they might sell large quantities of stock, leading to significant price drops.

The fact that Applied Digital has institutional investors indicates that these analysts have assessed the company positively. However, it’s crucial to acknowledge that institutions can make mistakes just like any other investor. The stock’s recent 18% decline shows how quickly market sentiment can change.

Historic Earnings and Revenue Growth

Examining Applied Digital’s historical earnings and revenue growth provides further insight into the company’s performance and prospects. Although past performance does not guarantee future results, a consistent track record of growth can instill confidence in investors.

Applied Digital’s substantial one-year return of 221% suggests strong performance, but investors should remain cautious and monitor the company’s ongoing financial health.

Major Shareholders

The largest shareholder of Applied Digital is Cummins Family Ltd, which owns 17% of the company. Xu Xin and Chen Guo are the second and third largest shareholders, each holding 7% of the stock.

Wesley Cummins, the CEO, also holds 3.5% of the shares. These significant holdings by major shareholders indicate a high level of confidence in the company’s future.

Concentration of Ownership

The concentration of ownership among the top shareholders means that a small number of investors have considerable influence over the company.

The top nine shareholders account for roughly 53% of the total shares, which can lead to stability in decision-making but also raises the risk of coordinated actions affecting the stock price.

While the presence of substantial institutional and insider ownership can be seen as a vote of confidence, it also means that these shareholders’ trading decisions can significantly impact the stock price.

Investors should be aware of this dynamic and consider how the actions of these major shareholders might influence the company’s future.

Insider Ownership

Insider ownership refers to shares held by individuals within the company, such as executives and board members. In the case of Applied Digital, insiders own a significant proportion of the company, with their holdings valued at approximately $124 million in a $553 million business.

This level of insider ownership can be a positive indicator, suggesting that those running the company are personally invested in its success.

Recent Insider Activity

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However, recent insider selling can be a red flag. Insiders selling shares might indicate a lack of confidence in the company’s future prospects or simply personal financial planning.

Investors should closely monitor insider trading activity, as it can provide valuable insights into the company’s internal sentiment.


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