Mueller Industries (NYSE: MLI) stock should halve this morning. MLI stock dropping by 50% is not, in fact, a symptom of some terrible disaster. It’s a purely technical move. It’s also only a nominal price change, not a real one. No wallets are to be harmed by this happening - and there’s a change that there will be some modest benefit. The reason why here is a perceived fashion and so the action is being undertaken to accord with that fashion. It’s certainly true that the culturally relevant beliefs used to be strong but whether they’re all that important now is another thing.
As to what’s done at Mueller: “Mueller Industries, Inc. manufactures and sells copper, brass, aluminum, and plastic products in the United States, the United Kingdom, Canada, South Korea, the Middle East, China, and Mexico. It operates through three segments: Piping Systems, Industrial Metals, and Climate. The Piping Systems segment offers copper tubes, fittings, line sets, and pipe nipples;” - so, it’s a producer of building supplies. A booming housing market has been good to it. We might surmise that rising interest rates are not going to be so kind.
That’s not the problem they’re trying to solve tough.
The problem, as management sees it, is that we investors have ideas about what is the “right” price range for a stock. We see this most often with penny stocks but the same idea makes something over $100 apparently look “expensive” to us. So, if a stock price, like MLI, is approaching $100 then perhaps more people would buy it if they thought it was less expensive and more “good value”? Of course, this is purely the number illusion but we know that we humans are subject to that. This is why prices are 99 cents, $39.99 and so on at the store.
This is also simple enough to achieve. Simply say that one old share now becomes two new ones - a two for one stock split: “Mueller Industries, Inc. (MLI) Tuesday announced a two-for-one stock split to be effected in the form of a 100 percent stock dividend.
Stockholders of record on October 6, 2023 will receive one additional share of common stock for each share of the company's common stock held on that date……The distribution date for the stock split, or the date on which new shares will be distributed from the Company's transfer agent, Equiniti Trust Company, LLC, will be October 20, 2023.” and so start trading this morning.
This doesn’t, directly at least, affect the market capitalisation of the company just the number of shares in issue. Therefore the stock price reacts mechanically, falling by that 50%. Whether it works, well, that depends upon our reaction. Maybe we will see it as offering better value at this lower nominal price and so buy more of it. And maybe not of course.
