Distribution Solutions (NASDAQ: DSGR) stock should drop 50% at the open this morning. DSGR stock is not dropping as a result of some terrible disaster to befall the firm - this is a problem of success, not one of failure. The rest of it is fashion - purely fashion. OK, we can call it culture if we prefer, possibly better in fact. Because this is an old thing, the idea that there’s a “right” price range for a stock price. Move out of that range and value can be added by technical adjustments to get it back into that correct and culturally relevant range. This is, of course, just playing on the number illusion. But given that we know us humans are fooled, a little bit at least, by that then it works.
As to what’s done at Distribution: “Distribution Solutions Group, Inc. operates as a specialty distribution company in Chicago, North America, Europe, Asia, South America, and the Middle East. The company provides distribution solutions to the maintenance, repair, and operations (MRO). It operates through three segments: Lawson; TestEquity; and Gexpro Services. The Lawson segment distributes of specialty products and services to the industrial, commercial, institutional, and government MRO market. The TestEquity segment distributes test and measurement equipment and solutions, electronic production supplies, and tool kits supporting the technology, aerospace, defense, automotive, electronics” etc. The problem if we are to regard this as a problem, is that it does this rather well.
Distribution Solutions stock price from Google Finance
Us humans are subject to that number fallacy - nominal fallacy perhaps. We think of things under $1 as being cheap, cheap as in not worth it. Things over $100 appear expensive.There are variations along the possible spectrum of prices.
So, it’s possible for a stock price to move out of that range which we view as solid, respectable and yes also reasonably priced. The cultural assumption is that by making a technical change, which moves the nominal price, value can be added. Which is what is happening here with DSGR stock. Double the number of shares in issue and halve the nominal price of each one: a stock split, a 2 for 1: “to increase the number of authorized shares of the Company’s common stock, $1.00 par value per share (the “Common Stock”) from 35,000,000 to 70,000,000 (the “Share Increase”) and to effect the previously announced two-for-one stock split (the “Stock Split”) of shares of Common Stock. The Share Increase and Stock Split became effective after market close on August 31, 2023.” Some tickers will show this from last night, some from this morning.
This is a purely technical change. The value - directly - of Distribution Solutions doesn’t change, just the number of shares doubles. Therefore each individual share is worth half the former value.