Are Institutions Cutting Back Their Holdings in Otonomy, Inc. (NASDAQ:OTIC)?

According to the latest company filings with the SEC, institutions owning shares of Otonomy, Inc. (NASDAQ:OTIC) have decreased their positions by -0.61%.  Institutions now own 70.90% of the company.

Investors often conduct stock analysis to help figure out which ones are a good buy, and at what price should they get in. The two main types of stock research used by investors are fundamental and technical analysis. Some investors will only study the fundamentals while others will only follow the technicals. Many will choose to combine the two methods in order to get a more well-rounded view of the stock. Fundamental analysis entails following company data. This may include studying the balance sheet, profit and loss statements, and the overall competency of company management. Fundamental analysts often use financial ratios to help understand company information. Technical analysts often study charts in order to define trends. This research is typically not concerned with how the underlying financials of the company look, but how the stock has been trading.

Big organizations that control vast sums of money, such as mutual funds, insurance companies or pension funds, that buy securities are known as “institutional investors”.  Unlike individual investors, institutional investors trade in massive blocks of 10,000 or more shares per transaction.  The sheer size of these trades significantly affect the price of a share. 

PROS AND CONS

Peter Lynch says in his best-selling book, “One Up on Wall Street”, that institutional ownership is a negative thing.  “Institutions don’t own it and the analysts don’t follow it”.  He favors the stocks that big investment groups pass on because he feels that these stocks are undervalued.  In contrast, Investor’s Business Daily’s William O’Neil thinks that institutional investors are important to driving up stock prices because they provide the largest source of demand for stocks.  O’Neil argues that if a stock has no institutional ownership, it means they have already passed on it.  He regards institutional ownership as a desirable stock trait in his book, “How to Make Money in Stocks”. 

Investors often look favorably upon stocks who have a large amount of institutional ownership.  These large companies often employ a team of analysts to perform financial research before purchasing a large block of stock, making their decisions influential in the eyes of other investors.

Due to the financial commitment that these companies make into research, these institutions aren’t quick to sell off their shares.  But when they do, however, it can drive down the price. 

TECHNICAL ANALYSIS

Technical analysts have little regard for the value of a company. They use historic price data to observe stock price patterns to predict the direction of that price going forward.  Analysts use common formulas and ratios to accomplish this.

Otonomy, Inc. (NASDAQ:OTIC)’s RSI (Relative Strength Index) is 48.53.  RSI is a technical indicator of price momentum, comparing the size of recent gains to the size of recent losses and establishes oversold and overbought positions.

Traders often employ unique systems when trying to beat the stock market. There are many different trading strategies or systems that can be used. New traders may find out very quickly that trading without a plan is a recipe for ruin. When starting out, it may require a lot of focus and dedication just to stay afloat. With more experience and hard work, traders may be able to eventually scoop up some of those profits that they were expecting when they started out. Some traders may have a few big wins right out of the gate. This may lead to overconfidence in the future if the proper precautions are not taken. Traders constantly need to be paying attention to everything that is going with the stock market. Moves can happen in the blink of an eye and without any notice. Being prepared to take a position at a moment’s notice can pay off big when the opportunity arises.

Shareholders can expect a return on equity of -56.60%.  Calculated by dividing Otonomy, Inc.’s annual earnings by its total assets, investors will note a return on assets of -51.70%.  Finally, Otonomy, Inc.’s return on investment stands at -77.90% when you divide the shareholder’s return by the cost.  The consensus analysts recommendation at this point stands at 2.50 for Otonomy, Inc. (NASDAQ:OTIC).  This is based on a 1-5 scale where 1 indicates a Strong Buy and 5 a Strong Sell.

Disclaimer: The views, opinions, and information expressed in this article are those of the authors and do not necessarily reflect the official policy or position of any company stakeholders, financial professionals, or analysts. Examples of analysis performed within this article are only examples. They should not be utilized to make stock portfolio or financial decisions as they are based only on limited and open source information. Assumptions made within the analysis are not reflective of the position of any analysts or financial professionals.