Sonic Foundry, Inc. (NASDAQ:SOFO) is Catching the Eye of Institutions

The latest Sonic Foundry, Inc. (NASDAQ:SOFO) SEC filings have revealed that institutions owning shares of  have increased their transactions by -6.20% in the past quarter.  Institutions now own 12.90% of the company.

Active investors are typically interested in the factors that drive stock price movements. Buying an individual stock means that you own a piece of the company. The hope is that the company does very well and becomes highly profitable. A profitable company may decide to do various things with the profits. They may reinvest profits back into the business, or they may choose to pay shareholders dividends from those earnings. Sometimes stocks may eventually become undervalued or overvalued. Spotting these trends may lead to further examination or the underlying fundamentals of the company. A company that continues to disappoint on the earnings front may have some issues that need to be addressed. It is highly important to make sure all the research is done on a stock, especially if the investor is heavily weighted on the name. Sometimes earnings reports may be good, but the stock price does not reflect that. Having a good understanding of the entire picture may help investors better travel the winding stock market road.

Investors look favorably upon stocks with a large amount of institutional ownership.  These large entities often hire a team of analysts to perform research prior to the group purchasing a company’s stock.  Because of the large research investment made, institutions aren’t quick to sell their position. 

Institutions may also influence the price of a stock after acquiring a position by using TV shows, articles in high-profile newspapers or magazines and presentations at investor conferences to help drive the price higher, increasing the value of the share.

PROS AND CONS

Is institutional ownership a good thing or a bad thing?  This is a matter of debate.  In his best-selling book, “One Up on Wall Street”, Peter Lynch lists thirteen characteristics of “the perfect stock.”  Regarding institutional ownership, he says:  “Institutions don’t own it and the analysts don’t follow it”.  He sees commodities that the big investment groups ignore as having the potential to be undervalued.

In comparison, William O’Neil, founder of Investor’s Business Daily, thinks that institutional investors provide the largest source of stock demand.  Something needed to increase the price of a share.  He says that if a stock has no institutional owners, there is a reason for it.  They’ve checked it out and passed.  He looks at institutional ownership as a desirable characteristic in stocks, as noted in his book, “How to Make Money in Stocks”. 

Both agree that institutional ownership can be a dangerous thing because they move in and out of the market in tremendous blocks, so the stock’s value can plunge if they sell off.

TECHNICAL INDICATORS

Sonic Foundry, Inc. (NASDAQ:SOFO) stock stands -23.21% away from its 50-day simple moving average and also -33.39% away from the 200-day average. 

Recently, the commodity stands -59.69% away from the 52-week high and 1.30% from the 52-week low.  The RSI (Relative Strength Index), an indicator that shows price strength by comparing upward and downward close-to-close movements is 28.59 for Sonic Foundry, Inc. (NASDAQ:SOFO).

When getting into the markets, most investors realize that riskier stocks may have an increased potential for higher returns. If investors decide to take a chance on some of these stocks, they may want to employ some standard techniques to help manage that risk. This may involve creating a diversified stock portfolio. Mixing up the portfolio with stocks from different sectors, market caps, and growth potential, may be the right move. In general, the goal is to maximize returns in accordance with the individual’s specific risk profile. It should be obvious that no matter how well rounded the portfolio is, there are always risks in the equity markets. Having a sound plan before investing can help ease the burden of knowing that markets can sometimes do crazy things without any rhyme or reason.