Rush Enterprises (NASDAQ: RUSHA) is, to us at least, one of those surprising things we find tucked away in the economy. Logically, we know that people sell trucks. We can grasp that dealerships might well be organised in chains, as with auto sales. So it’s not a shock to find out that there’s a large truck dealer chain on the stock markets. But it is a little bit of a surprise as we’d never quite thought the idea through before. But that’s Rush : “Rush Enterprises, Inc., through its subsidiaries, operates as an integrated retailer of commercial vehicles and related services in the United States and Canada. The company operates a network of commercial vehicle dealerships under the Rush Truck Centers name. Its Rush Truck Centers primarily sell commercial vehicles manufactured by Peterbilt, International, Hino, Ford, Isuzu, IC Bus, and Blue Bird. The company also provides new and used commercial vehicles, and aftermarket parts, as well as service and repair, financing, and leasing and rental services”
Rush seems to do this pretty well. Leading to a stock price rising gently over time and, well, so what? The what here is that the price should decline by 33% this morning. Which might come as a bit of a shock to those who haven’t been paying attention.
The reason for this price change is fashion, pure and simple. Or perhaps a fashion that’s so deeply ingrained that it has become part of the stock market culture.
Rush Enterprises stock price from Google Finance
The fashion thing - the culture if you like - is that the markets thing there’s a “right” range for a stock price. That this is fashion - or culture - is shown by the range being $10 to $100 on the New York markets and £1 to £10 on the London. This is why a US ADR is so often 10 pieces of a London stock. In these days of fractional share ownership and so on it doesn’t really matter anymore but there it is, it’s embedded in belief. So, companies will vary the number of shares in issue in order to maintain the stock price in those ranges.
Exactly what is happening here. “Rush Enterprises, the nation’s largest network of new truck dealerships, will execute a 3:2 split on Class A and B shares after a strong second quarter led by its parts and service business. The split means shareholders will receive an additional one-half share for each common share held as of Aug. 7.” RUSHA stock starts trading post-split this morning, thus the 33% fall in the price.
This is, of course, a purely nominal price change. The only real price change will come if the theory is correct, people do view something at $60 as being “expensive” and the same thing at $40 as being cheaper.