AAON (NASDAQ: AAON) stock should fall 33% at the open. AAON stock is not going to fall because of some outbreak of ghastly news about the company, its performance or its finances. No, this is a problem of success, one that the corporate management is trying to solve. True, in order to think that is is a problem that needs a solution we’ve got to subscribe to a slightly out of date fashion, or market culture. But enough people do still believe this stuff that it probably is in fact true.
For those who don’t know AAON: “AAON, Inc., together with its subsidiaries, engages in engineering, manufacturing, marketing, and selling air conditioning and heating equipment in the United States and Canada. The company operates through three segments: AAON Oklahoma, AAON Coil Products, and BASX. It offers rooftop units, data center cooling solutions, cleanroom systems, chillers, packaged outdoor mechanical rooms, air handling units, makeup air units, energy recovery units, condensing units, geothermal/water-source heat pumps, coils, and controls.” OK, that’s certainly a business that could be profitable if done well. And it is done well too. The last quarter has net income of $45 million on $280 million in sales. Nice numbers.
It’s this which leads to the problem that management think they need to solve
AAON stock price from Google Finance
There’s a fashion that says that the “right” stock price is between $10 and $100. We know that this is a fashion, or a habit, on the NY markets because the equivalent right range in London is £1 to £10. We can, if we want to get a little more sophisticated, talk about anchoring human price expectations and so on. But that’s just more words to describe the same thing. Stock prices that go above $100 are seen as expensive by some to many investors. That means they won’t buy them. The management is meant to be working for shareholders, meaning making the stock more expensive. So, if they can attract more buyers - and thus push up the real stock price - by moving the nominal price below $100 then possibly they should do that.
The way to do this is a stock split. Simply declare that what were two shares yesterday are three today: “AAON board of directors declared a three-for-two stock split of its common stock in the form of a stock dividend. Each stockholder of record on Jul 28 is entitled to an additional share of common stock for each two shares they hold as of that date and cash will be paid in lieu of fractional shares.”
AAON’s stock price should decline by 33% as a result. But this is a solution to a problem of success, not failure.
