ADR (American Depositary Receipt)
A receipt that lets a foreign company's stock trade on US exchanges — the channel to invest in overseas firms through a US account.
In plain terms
You have probably seen non-US companies like Taiwan's TSMC or China's Alibaba trading on US exchanges. This is possible thanks to ADRs.
A US bank holds that foreign stock and instead puts a "receipt for that stock" on the US market to buy and sell in dollars. It is a channel for investing in companies worldwide through a US account.
What it tells you
It tells you that even a ticker trading on a US exchange may at heart be a foreign company (e.g. TSM is the ADR of a Taiwanese company).
Through an ADR you can invest in an overseas company within the US market, without currency exchange or an overseas account.
Formula
no set formula — a US bank holds a foreign company's stock and lists a corresponding receipt (ADR) on a US exchange to trade in dollars. (how many shares of the home stock one ADR represents differs by stock)
What high or low means
An ADR's price reflects both the value of the home stock (the underlying) and the exchange rate. When the underlying rises or that country's currency strengthens, the ADR tends to rise.
Because the home market and the US market trade at different hours, a temporary price gap can open between the underlying and the ADR.
ADRs are affected by exchange rates. Even if the company's stock is unchanged, the ADR's value can fall if that country's currency weakens.
There is a fee the depositary bank takes (an ADR fee), and foreign taxes are sometimes levied on dividends.
The home country's regulatory and political risk passes straight through to the ADR. Even though it looks like a US stock, it carries that country's risk.
Metrics to read alongside
See it in real stocks
Search US stocks on Stocklore to see ADR and other financial metrics alongside the sector average.
This explanation is for information and reference only and is not a recommendation to buy or sell any security. Investment decisions and their consequences are your own.