ExlService (NASDAQ: EXLS) stock will drop 80% at the open today. EXLS stock is not dropping in some delayed reaction to the recent results, nor because of some disaster that has befallen the firm. This is instead the result of good news, of the stock price rising in the past. So much so that the management think it’s too expensive - so they’re doing something to make it cheaper. But the reason not to worry is that this is all about nominal prices, not real ones.
As to what’s done at ExlService: “ExlService Holdings, Inc. operates as a data analytics, and digital operations and solutions company in the United States and internationally. It operates through Insurance, Healthcare, Analytics, and Emerging Business segments. The company provides digital operations and solutions and analytics-driven services, such as claims processing, premium and benefit administration,” and so on. Interesting but not really relevant to our point here today.
What is relevant is that this is all being done well. Yes, the recent results cause a bit of a drop in the stock price but over the past 5 years that price has risen from some $50 to the current $140 or so. This is the problem the management is trying to solve.
ExlService stock price from Google Finance
Yes, they’re trying to solve this problem of having run the business so well that the stock price has risen: “ExlService Holdings, Inc. (NASDAQ: EXLS), a leading data analytics and digital operations and solutions company, today announced that it will implement a five-for-one forward stock split of its common stock, with trading on a post-split basis expected to begin on Aug. 2, 2023.” And the benefits appear to be ““This split brings several benefits, including increased liquidity, improved transparency and lower trading costs for our stockholders. Additionally, the lower post-split share price enhances accessibility for our employees to participate in the company’s employee stock ownership program.”” That’s nearly all guff, just managementspeak.
What’s really going on here is that stock markets are subject to fashions - and why not, they are collections of humans with a culture after all. One of which is that varied markets have price ranges they think “right” for a stock. In New York it’s $10 to $100. Something above that is regarded as “expensive”. So, if the company’s been successful enough to drive the stock price up into that expensive territory then split it to lower that price. Have a stock split that is. It doesn’t change the value of the company as a whole, just the number of shares that make it up. The stock price therefore moves, mechanically.
ExlService stock will drop 80% at the open. But this is a purely nominal price change, not a real one.
