The phenomenal run-up in K-Tel's
stock since the music retailer announced plans to sell records via the Internet only two weeks ago already has prompted management to declare a 2-to-1 stock split.
K-Tel's wild ride has come to symbolize the hype--and promise--of Net stocks, which has amazed many long-time market-watchers.
And K-Tel is not
alone. Egghead Software, another
retailer that is migrating to
the Web, has recorded a sharp upswing in its share price since announcing
its Net strategy in January.
the stock of 7th Level, whose backers include financier Michael Milken, also has recorded sharp gains.
Online giants such as Yahoo, Excite, and Amazon.com also are on the rise.
But K-Tel likely is the most dramatic example. The company, best known for selling "oldie but goodie" records via television infomercials, announced plans to sell 250,000 music titles via the Web on April 9. Its Web site is "still under construction" and won't open for business until May 1.
K-tel also faces intense competition from online music sites such as CDnow and N2K, among others.
Despite their promise, most e-commerce companies still are losing money. But that hasn't stopped K-Tel's stock from gaining sixfold since its new business plans were rolled out. The shares were trading down $2.56 this morning at $41.31. The stock has traded as high $49.50 and as low as $5.63 during the past 52 weeks. During that same time period, however, the stock has
stagnated at less than $10 per share.
"A 2-for-1 stock split will further enhance the availability and
affordability of K-Tel stock," K-Tel president David Weiner said in announcing the 2-to-1 split. "Increasing our outstanding shares affords the retail investor greater opportunity to participate in the future of K-Tel."
The split will be paid in the form of a stock dividend, payable to shareholders of record on May 1. The stock dividend will be
payable on or about May 8.
Internet bulletin boards are buzzing with comment about stocks such as K-Tel. "The Motley Fool" columnist Dale Wettlaufer warned: "Some of these might be fine companies, but market participants and traders running these things to the moon because of any connection, however tenuous, to the Internet, creates a good deal of danger for those not paying close attention to what they're doing."
The Web site briefing.com added: "The poster boy for Internet mania shows that it knows how to play the splits game too. Let's hope that K-Tel's management is spending as much time generating revenues and earnings growth as it is hyping the stock."