Monday, October 18, 2021

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    Opinion: What is included in the company name change? Often a higher stock price.

    On October 4, the stock that was trading with the ticker CREE began trading as WOLF.
    + 2.46%
    It reflects the change in company name from Cree to Wolfspeed.

    Wolfspeed’s share price surged 1.2% on the day the Nasdaq Composite rose.
    + 1.47%

    2.1% reduction — 3.3 percentage point outperformance margin.

    Is it a coincidence that Wolfspeed shares outperformed the market on the day they opened trading under the new ticker? Probably not.

    Over the years, many companies have changed their names, and in the days immediately following, many have outperformed the market. Unfortunately, according to the academic research consensus I read, renaming a company does not, on average, improve stock performance in the long run and can actually hurt it.

    In the case of Wolfspeed, the name change completes the process of years from turning the company primarily from an LED lighting company to a semiconductor company. The question is not whether it was a good idea for the company to bet the future on semiconductors instead of LED lighting. The question is, given that Wolfspeed is already shifting to semiconductors, is the stock performing better on the ticker WOLF than on CREE? (The email to Wolfspeed’s Media Relations office requesting comment was not immediately answered.)

    If the stock market is perfectly rational, changing the name and ticker will not affect the stock price. This is because the changes are just superficial and do not affect the profitability of the enterprise. If change affects stock performance, it must be evidence of investor sentiment, not fundamentals. It has been discovered by many studies.

    Name game

    One channel where name or ticker changes can affect performance tracing affects investor preferences for cute or prominent names and tickers. In an interview, Michael Cooper, a professor of finance at the University of Utah, pointed out that “CREE” itself has no meaning. In contrast, “WOLF” is immediately recognizable and has many positive relationships with the quality investors may be looking for in their company. For example, some of the features on the “Wolf” dictionary list are predatory, greedy, and fierce.

    Cooper Studies that appeared a few years ago It found that companies with “familiar, likable” names and tickers were “traded at a significant premium” compared to companies with unfamiliar or unfavorable names.

    Another channel where renaming can impact performance is to leverage investor euphoria on a particular subject or technology. It’s not very clear that this channel is related to the Wolfspeed name and ticker changes, but given investor excitement for semiconductor technology, it could still play a role.

    A great example of this effect was the performance of a company that recently renamed to incorporate “blockchain.” One study Companies that renamed to include “blockchain” were found to have outperformed the market by 30% in the three days surrounding the name change announcement.

    In the Go-Go era of the late 1990s, older illustrations appeared at the start of the Internet bubble. NS study According to Cooper’s co-authorship, companies that renamed to include “dotcom” outperformed the market by 74% in the 10 days surrounding the name change announcement.

    The opposite of the “dot-com effect” occurred during the deflation of the Internet bubble — when the connection with the Internet was responsible. Sure enough, Researchers have found evidence of a “dotcom removal” effect. During that period, companies that removed references to the Internet or “dotcom” outperformed the market by an average of 64% in the 60 days surrounding the announcement of the change.

    Long-term impact

    Few academic studies have assessed the long-term effects of changing company names. However, the evidence gathered by those studies suggests that it is neutral or negative.

    One study focusing on all UK listed companies that changed their name between 1987 and 2002Found that these stocks lag behind the entire market, on average 36 months after the announcement of the name change.

    Another study focusing on renaming Hong Kong listed companies from 1999 to 2008.. “Not long term [36-month] relationship [of name changes] In stock price … Performance. “

    What is the conclusion? The stock of a company now called Wolfspeed could certainly outperform the market. Still, it’s not because of its new name or ticker, but because its business grows faster and is more profitable than other markets.

    Mark Hulbert is a regular MarketWatch contributor. His Hulbert Ratings tracks investment newsletters that pay a flat rate to be audited.He can reach at

    more: The volatile October history of the stock market means it’s time to settle for the “Black Swan” event.

    Read again: I failed to purchase the dip. Here’s what investors need to do next, says Morgan Stanley.

    Opinion: What is included in the company name change? Often a higher stock price.

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