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Biolase Up 32% Premarket – Stock Consolidation To Blame?

Tim Worstall
Tim Worstall trader
Updated 3 Dec 2021

Biolase (NASDAQ:BIOL) is up 32% in premarket trading. This looks to be a technical correction. Or if we prefer, something not so much to do with the underlying business as it is with Biolase looking more likely to actually stay on Nasdaq rather than be demoted to the Pink Sheets.

Biolase as a company is a sensible enough business. It deals with the dental lasers that are making those tooth drillings so much less painful these days. Sadly there are other companies which do the same thing so while we, shaking in the chair, gain the benefit the company doesn’t quite so much.

The last results were near a month back and that’s not what is influencing the price so much right now. Rather, it’s that those results haven’t been all that breathtaking for some time and so the stock price has been declining. This is sad for those long of course but then so what?

Well, the what is a rule on NASDAQ, one that Biolase is tripping over. The Americans tend not to like penny stocks, they think the right price for a share is $1 and above. So, if a stock price falls below $1 each for an extended period of time then the company can – will, eventually – lose its NASDAQ quotation. Biolase has been warned about this, formally, and given notice that it must get that stock price back up over $1 for 10 consecutive trading days or it’s bye-bye the NASDAQ quote.

This in itself depresses the price as the OTC markets are much less liquid and that makes the stock less attractive. So, something must be done.

There is that option of pulling stellar trading results out of the hat but that’s not how it usually works. Instead, what the Americans call a reverse stock split and Brits a consolidation takes place. Where once each investor had 10 shares, they now have one, or perhaps 5 to one or whatever.

In theory this should make no difference to the price at all. 5 shares at 40 cents a piece are worth $2 for one. But that’s not how it actually happens because of that NASDAQ rule. The loss of the quote would mean a significant loss in value of the company and of each share. As the risk of this happening increases the stock declines in value.

Equally, as the plans for the consolidation, the reverse stock split, advance then the stock itself rises in value. For that risk of delisting retreats.

This is what the trade in Biolase is about at present. Will the management be successful in getting the consolidation, the reverse stock split, through? If they do then not only will the stock price rise purely from the mathematics of the number of shares in issue, the removal of the delisting risk will further boost the price. Or, of course, they’ll fail and the stock move to OTC and presumably fall further in value.

That’s the speculation – success in the consolidation at Biolase or not?

Tim Worstall
Tim Worstall is a freelance writer specialising in economics and the financial markets.