Notwithstanding the strong performance of Skyline Chili Inc. shares week before last, the issue has been steadily picking up steam since mid-December - to the tune of 40 percent.
That's big news for a sleepy stock with no Wall Street analyst coverage. The stock closed Friday at $7.6834, after climbing to an all-time high of $9.1212 Feb. 21.
Skyline left the Nasdaq Small-Cap market at the end of October for listing on the American Stock Exchange. The Fairfield-based chili-parlor chain abandoned Nasdaq in search of smaller spreads - an advantage that Amex and the New York Stock Exchange often tout when comparing themselves to their fast-growing rival Nasdaq.
The incentive was powerful enough to convince Skyline and 25 other former Nasdaq stocks to join Amex in 1996; 21 left Nadaq for Amex in 1995 and 17 in 1994. Since making the switch, Skyline's stock has been going great guns.
''The reaction is typical of companies moving to Amex from Nasdaq,'' says Paul Schultz, a finance professor at Ohio State University.
Mr. Schultz co-authored a 1994 study that showed market makers colluded to maintain unusually high spreads on Nasdaq stocks. The study led the Securities and Exchange Commission to implement recent trading-rule changes on Nasdaq, changes designed to narrow the historically high spreads of Nasdaq stocks.
Tighter spreads underscore at least part of the reason that Skyline's stock is performing better as an Amex-listed issue, Mr. Schultz said. The spread on Skyline was about 37 cents in September, the month before it left Nasdaq, according to Amex officials. The spread now is 19 cents.
Spurned buyout offer
Still, news that Skyline had received and spurned an unsolicited $26 million buyout offer helps explain why the stock moved up so dramatically the week before last. Skyline officials haven't returned calls for comment, nor has the suitor been identified.
''You can't discount the news,'' Mr. Schultz said.
But the fact that the stock has been performing so well since it left Nasdaq in late October - months before the buyout offer was announced - shows that the auction system was a good choice for Skyline, he added.
Spreads are the difference between the bid and asked price on a stock. In other words, they are the difference between what someone is willing to pay for a stock vs. the price for which another wants to sell. Spreads represent the profit taken by market makers and specialists for executing buy and sell orders.
Tighter spreads promote better prices for investors buying a particular stock.
And, in the case of Amex, trading activity typically is more brisk at least for illiquid or thinly traded stocks because of the rules that govern a specialist's role in the auction system.
On Amex, each stock is assigned one specialist. The specialist matches buy and sell orders for that stock. A key difference between Nasdaq and Amex is that specialists cannot refuse an order to buy or sell a stock, thus creating more liquidity in the market.
Just one price
With Nasdaq, there are multiple market makers conceivably posting various prices for a given stock. With Amex, there is only one price - the best or market price - because there is only one person executing the trades for a given stock.
One of the big advantages of a multiple market maker system, though, is promotion because there are more people with a vested interest in moving a given stock. The problem is that market makers tend to demand a bigger spread for riskier stocks. Skyline was considered fairly risky because of its illiquid nature. Insiders control 73 percent of Skyline's 3.5 million shares, leaving little for the public. Skyline's volume typically is between 500 and 1,000 shares a day.
Ursula Miller covers investments and financial markets for The Enquirer. She can be reached at 768-8573.
