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Parent-company shareholders receive spin-off shares they never chose to buy, and many institutions dump them indiscriminately because the new entity is too small, outside their index, or unrelated to their mandate. This non-economic selling depresses the price in the first months after the spin-off, creating a systematic bargain unrelated to the business's actual value.
When analyzing a corporate restructuring, look at where management's stock options and equity stakes end up, because insiders tend to structure deals so their own compensation benefits. If executives choose to take their incentive pay in the spun-off entity, or buy heavily into it, that signals where they expect the value to be created.
Look for situations where the deal structure hands investors built-in leverage or a discounted entry, such as rights offerings priced below market or 'stub' equity left over after a leveraged recapitalization. Because these instruments are complicated and poorly marketed, few investors examine them, so a small, highly leveraged equity slice can produce outsized returns when the underlying business performs even modestly well.