A stock that is issued by a company for the purpose of tracking performance of a specific division. Tracking stocks are common stocks issued by a parent company to replicates the performance of an operating segment. For example, some companies might issue a tracking stock for a rapidly growing division. Previously, tracking stock was known as alphabet stock, though this is not the technically correct name. Tracking stocks provide a way to reward management for spectacular divisional performance with an equity (ownership interest) that is linked to the performance of a relevant division, rather than badly affecting a specific division’s compensation by the adverse performance of another.
Tracking stocks are also known as targeted stocks.
