The Cyren Ltd (NASDAQ: CYRN) stock price has not been having a good time of it this past year, falling 86% by one count. The company is based in Israel and supplies cybersecurity cloud products.
It’s perhaps odd that a company in such a fashionable field isn’t doing better but there it is, things like this happen. The big thing today though is that the stock price for Cyren – as reported at least – has jumped 1,897%. Which is a pretty big leap in a stock price. So, what’s happening here?
This is, in the first instance, an entirely technical move. Cyren has just had a reverse stock split – what the English call a consolidation. As the company explains: “Cyren Ltd. (NASDAQ: CYRN), (the “Company”) a provider of email security and threat intelligence solutions announced that it intends to effect a one-for-twenty reverse split of its ordinary shares”.
This took effect at close of market last night and stock trade today is of this new form, not the old. So, everyone who had 20 shares yesterday now has one, everyone who had 200 now has 10. There should be a direct mathematical relationship between the two prices as well. Changing the number of shares in issue should not change the value of the company. Therefore each new share should be worth 20 of the old ones.
At the close of play last night Cyren was 20 cents for the old shares so each should be $4 today. A 20 for one reverse stock split, or consolidation, should mean a 2,000% rise in the share price. Currently each Cyren stock is at $4.08, so we are about where theory tells us the Cyren stock price should be.
The thing is though that reverse stock splits don’t work in that theoretical manner. If they did then no one would ever do them – nor the other way around, stock splits themselves.
Sometimes this is just a matter of fashion. As it happens UK markets tend to – tend to – like share prices between £1 and £10. US markets seem more comfortable with them between $10 and $100. Stock splits and consolidations to keep stock prices in those ranges for their home markets do seem to change – slightly – the market capitalisation of the company. This is also why an ADR of a UK listed share tends to be 10 pieces of the London stock.
But there’s more to it as well. Penny stocks in the US are associated with the OTC and Pink Sheet markets – where conmen reside. So, NASDAQ will cancel your quote after some period of a stock price below $1 – usually 18 months below. This consolidation is probably an attempt to avoid that fate. This of course does add to the value because it removes – well, for a time at least – the uncertainty of losing that quote and the associated liquidity.
As to what will happen next to the Cyren stock price, in theory it should continue to trade around where it is, that $4 mark. It had been trading around and just under the 20 cents for some time after all. It’s possible that some will misread this stock price rise and think there’s something to ride. But then that can work either way too, both bulls and bears might be interested in a 2,000% price change.
Any real change in the Cyren stock price will depend upon a change in the performance of the underlying business, not changes in the stock issuance as here with a reverse stock split.
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Tim Worstall is a freelance writer specialising in economics and the financial markets.