Why 3-D Printing Company Arcam AB (ADR) Stock Apparently Crashed Over 70% Today

Whenever you see huge drops and no news as to why, it might be due to an innocuous reason.

Jan 21, 2014 at 7:22PM

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis

What?
I'd imagine some investors were greeted with a jolt today if they checked the share price of Swedish 3-D metals printing company Arcam (NASDAQOTH:AMAVF) on Yahoo! Finance and/or other online financial and trading sites. Most sites were showing the stock as down about 70% throughout the day, and in the red 73% at the market close. In reality, the stock was up considerably all day and notched a 7.8% gain when the trading day came to a halt. 

So what?
Investors who pay attention to company news releases, however, probably didn't bat an eye. They likely realized that Arcam's 4:1 stock split, which the company announced via a Jan. 16 news wire, had become effective, and financial sites had yet to update their data.A lag such as this is relatively common, especially when we're dealing with foreign stocks that trade as American depository receipts, or ADRs.

Now what?
As to the "missing" shares in brokerage accounts, Arcam investors should expect to see the correct number of shares in their accounts within a couple days. Typically, brokerage firms must wait until they physically receive the stock certificates from the transfer agent before they can be credited to investors' accounts.

As to the share price, today's 7.8% rise on no relevant news was pretty sweet. Most investors know that a stock's share price has nothing to do with its value. That said, there's often a psychological factor at play, with some investors perceiving greater value in stocks trading at lower share prices, as well as feeling "richer" when they possess more shares. So, it's not uncommon for a nice bump up in share price just after a stock split.

For stocks with low trading volume, however, increasing the number of shares can sometimes help with liquidity. Arcam is such a stock, as its three-month average trading volume (pre-split) is about 11,000 shares.  

The data is mixed on the results of stock splits on long-term stock price performance. So it's probably not a good idea to consider stock splits when making your investment decisions.

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Fool contributor Beth McKenna and The Motley Fool have no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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