In what may be one of the more convoluted stock split announcements I've ever heard of, NetEase (NASDAQ:NTES) announced that the ratio on its American depository receipts -- the ADRs that trade stateside -- would be tweaked starting next week. Instead of each ADR representing 100 ordinary shares of China's fast-growing online gaming specialist, it will now vouch for 25 ordinary shares, with existing investors receiving three more ADRs for each ADR they presently own.
In short, this is a 4-for-1 stock split. With NetEase's stateside trading price approaching triple digits, it's a logical move even though a share split obviously doesn't alter the underlying fundamentals.
The key here is that most of the actively traded China-based stocks are trading in the low-double digits. Back in 2002, NetEase was joined by Motley Fool Stock Advisor pick SINA (NASDAQ:SINA) and Sohu.com (NASDAQ:SOHU) as part of a Chinese threesome that erupted into 10-baggers over the course of only a few months. When the government began cracking down on the wireless messaging entertainment that all three were feasting on, they went their separate ways.
Earlier this afternoon, the disparity was clear just by pulling up a quote on all three companies.
| Price | |
|---|---|
| NetEase | $96.51 |
| SINA | $26.79 |
| Sohu.com | $23.75 |
At current prices, NetEase's 4-for-1 stock split would bring it right back into the pack, with shareholders clearly not smarting over now owning four times as many ADRs as they used to.
At least NetEase was able to orchestrate its stock split. Last year, Baidu.com (NASDAQ:BIDU) priced its IPO at $27 and soared as high as $154 on its first trading day. Gravity quickly whittled away at the leading Chinese search engine to the point where it is now trading at a third of its all-time high today.
NetEase's all-time high? You're soaking in it. This morning's stock split news found the stock reaching new heights today. The shares have soared 88% higher since being recommended to Motley Fool Rule Breakers newsletter service subscribers 15 months ago. Healthy growth and better-than-expected results got this company this far. Today's split-based spurt? Well, that's more of the synthetic kind of boost, but I trust that investors will take it any way the market doles it out.
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Longtime Fool contributor Rick Munarriz has been a fan of China's high-margin gaming stocks for a long time. He does own shares in Baidu. T he Fool has a disclosure policy. Rick is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early.
