Key points:
- Quhuo's stock is down 84% on the year
- Today there's a 999% price rise
- This is proof that the plan actually worked – but what was the plan?
QuHuo Limited (NASDAQ: QH) stock has not been a good investment this past year – the price is down 83.92% over the 12 months. On the other hand the QH stock price is up 999.95% this morning, which might be thought to make up for some of that. That would actually work, an 840% price rise would in fact wipe out and take back to level an 84% price fall – that's just how percentages work. However, this is not, in fact, a real price change, it's a purely nominal one. The market valuation of the company is as it was, the value of any particular stake is the same as it was yesterday. All that's changed is the number of shares in issue and thus the value of each one.
As to what QuHuo does it's – despite the fancier language they themselves use – akin to an employment agency, or staffing outfit, for the gig economy in China. The big labour employer there is the home delivery market, all those companies like Missfresh trying to see if immediate home delivery is likely to work there. As Missfresh has found out that doesn't, in fact, seem like a very good market to be in. So, we can imagine that those selling services into that market also suffer along with the players in the market itself.
Just as selling shovels to miners is highly profitable in a gold rush so too trying the same trick in a busted market is unlikely to work all that well. Which is, as far as the underlying business itself goes, what has happened to Quhuo.
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As to what has happened to the Quhuo stock price this is a reverse share split, a consolidation to Brits. That 84% stock price fall over the year left QH well under the NASAQ minimum offer price limit of $1. So, there was a risk that the quotation would be lost and trading relegated to the OTC markets. That would mean lower liquidity and make it more difficult to raise capital – so, all other things being equal, a fall in the value of Quhuo stock.
One thing we can say about this stock split is that it was well telegraphed. Stock prices should – should – move on what we know about the stock. So, the consolidation was a 1:10, for every 10 shares previously owned there will now be one. That should lead to a 1,000% rise in the share price – the actual rise at pixel time was 999.95%. Almost exactly spot on. So, the market knew this was coming, had paid attention. And if we look at that stock price chart we can see that it rose over the previous few days in the lead up to the consolidation. That risk of relegation to OTC was fading so therefore QH was worth more than with that risk still attached.
That is, there's been no real change in Quhuo's stock price today, only a nominal one – it's a reverse stock split.