Rinnai Corporation (TYO: 5947) (OTCPK: RINIY) runs what looks to be a deeply unsexy business. So much so that the ADR quote seems to have near no trade at all. Which is perhaps unfortunate for a company that makes things people use, that people buy and which provides a good living. It is, perhaps, one of those boring industrial stocks which doesn't get much love from the markets. It's also not the sort of stock we'd expect to see a 66% price change in over the one day.
Rinnai is indeed one of those boring industrial stocks. A large corporation ($3 billion and change in turnover) that just gets on with industrial things - gas powered clothes driers, commercial kitchen equipment and so on. Someone has to make these because people do use them. But they're simply not the sort of thing that sets imaginations alight. On the other hand there's a real business there, throwing off revenues and profits. So, something might be done to tempt investors to take the Rennai stock more seriously.
Rinnai Corporation share price from Google That something the management are trying is a share split. As from the corporate announcement this is a three for one. Some would also describe it as a two for one - just depends on how you would prefer to describe it. Where on Friday there was one share there will now be three - two new shares issued for each old one.
As to the reason: “The stock split will be conducted with the aim of increasing the liquidity of Rinnai stock and expanding the Corporation's investor base by reducing the price of share-trading units.”
Different stock markets simply have different - cultural, or fashionable even - ideas of what stock prices “should be”. London thinks £1 to £10. New York $10 to $100. So, when stocks go outside the ranges share splits, or consolidations the other way, might be undertaken to get the price back into that fashionable range. It's really no more than investors look at a price and think “Ooooh, that's expensive”. Which is the nominal fallacy that humans are prey to. But precisely because we are prey to that fallacy - looking at the nominal price, not the real - such stock splits can work. Prices go up just because the split has happened even when nothing else has changed. The proof here will not be the 66% fall in the Rinnai price, but the variation around that fall - if it's only 64%, for example, then value has been added by the split.