Agile Therapeutics (NASDAQ: AGRX) stock price has risen 3,300% premarket today. Or, another way of looking at it, AGRX has fallen 20%. Both of these are true, within the details of what it is that is being measured. Which is being reported by a ticker will depend on how updated that ticker calculator is concerning this particular stock.
The secret here is that Agile Therapeutics was likely to lose its NASDAQ listing soon enough. So, something had to be done, and something was – a reverse stock split, or as the Brits say, a consolidation.
The background here is just one of those fashion things. There’s no reason why a stock price should be in any particular range. Fractions of a cent, hundreds of dollars, these make no economic difference. The number of shares in issue times their price is the market capitalisation and that’s the issue which is of economic importance.
However, that’s not how things work out in real life. The London market has long thought that the “right” range for a share price is in the £1 to £10 range. No real reason, this just is the culture or fashion. On the other hand, the New York markets have thought that $10 to $100 is the right range. This is why the ADRs of a London stock generally consists of 10 pieces of that London listing – it gets both ends of the share price into the culturally relevant ranges for the respective markets.
There’s also an American thought that prices under $1 are a market of bad quality. “Penny stocks” are not regarded quite as well as “penny shares” are in London, and even that’s not all that good at the British end. This means that NASDAQ will cancel the listing of a stock that remains below $1 for a length of time – usually 18 months. That would mean losing the liquidity of that market, the ability to raise capital, and so on, and life on the OTC markets instead.
At the top of the market, we do see corporates with stock prices racing off into the $000s having stock splits to bring the price back down to the $00s level – both AAPL and GOOG have recently done this. At the bottom end, we have, often enough, what Agile Therapeutics has just done, a reverse stock split or a consolidation. Yesterday people had 40 AGRX stock. Today, they have one piece. Obviously, the stock price should rise 4,000% at this point. But it’s only risen 3,300%. So, that’s the explanation of it being both a 3,300% rise and also a 20% fall – there’s been a reverse stock split. One that hasn’t worked in increasing the total valuation of Agile, even as it does remove that risk of losing the NASDAQ quote.
It’s even possible to muse that the greater liquidity is just giving people the option to exit.
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Tim Worstall is a freelance writer specialising in economics and the financial markets.