Copart (NASDAQ: CPRT) stock will halve at the open today. CPRT stock dropping 50% might cause some heart attacks but it shouldn’t - this is a technical, even nominal, price change and not something that is about to damage wallets. It might even, maybe, just add a percent or two to the value of any holding. This is about a fashion, perhaps a cultural practice, on the American stock markets, not a reaction to some disaster that has befallen the firm.
As to what’s done at Copart: “Copart, Inc. provides online auctions and vehicle remarketing services in the United States, Canada, the United Kingdom, Brazil, the Republic of Ireland, Germany, Finland, the United Arab Emirates, Oman, Bahrain, and Spain.” Or, another telling of the same story: “Copart, Inc., founded in 1982, is a global leader in online vehicle auctions. Copart’s innovative technology and online auction platform links sellers to more than 750,000 members in over 190 countries. Copart offers services to process and sell vehicles to dealers, dismantlers, rebuilders, exporters, and to the general public. Copart sells vehicles on behalf of insurance companies, banks, finance companies, charities, fleet operators, dealers, vehicle rental companies, and individuals. With operations at over 200 locations in 11 countries, Copart has more than 250,000 vehicles available online every day.”
A business point we should make here. Copart is the auctioneer and systems owner, not the principal in these transactions. So it makes money from the flow of deals, not from changes in the value of the stock. It also does this very well as can be seen from the volume flowing through the system.
Copart stock price from Google Finance
As we can see the Copart stock price has risen substantially. That’s a problem that needs to be solved. For the cultural thing in the New York markets is that the “right price” for a stock is in the $10 to $100 range. Above that and it is thought of as “expensive”. This is the money illusion, but it’s true for all that.
So, if a stock price looks like becoming that “too expensive” by going above $100 then something should be done. Just insist that every one share will now become two. Copart is doing is as a dividend of one share for every one help but the effect is the same, a 2 for 1 stock split. This halves the stock price of course - there are now twice as many making up the ownership of the same firm.
The only reason to do this is just because that’s the way the fashion, or culture, of the markets works. But it does work - we often do see prices move up a percent or two as a result of such a split.