- Alkido Pharma is up 1,300% in nominal terms
- This is more like a 30% fall in real terms
- The little secret is in the number of shares in issue
Alkido Pharma (NASDAQ: AIKI) stock is listed, on many tickers, as being up 1,300 percent or so this morning. It is, in fact, more like 30% down. Which present us with the interesting problem of how a stock can rise 1,300% in nominal terms and yet also be down 30% or so in real terms. The answer being that we've changed the nominal price. We've changed the number if shares in issue that is.
AIKI was quite the thing near a decade back – in nominal terms that is. Compared to today's stock price for Alkido back then it was well up over $1,000 at times. That though is again in those nominal terms. For Alkido has never managed to do anything very much and has just been rumbling along as a microcap pharma development company. It may well be that the varied developments of prostate cancer, pancreatic and a couple of types of leukaemia treatments – we'd all like those to succeed of course – will come good but they've not managed to so far.
So, what brings about a 1,300% price rise? For that is, by some measures the rise today in Alkido stock. The answer is our old friend, the reverse stock split. Or as Brits call it, the consolidation. It's also this that turns that nominal 1,300% price rise into a real price decline of about 30%.
In theory there's no particular reason for this, it's a matter of fashion more than anything else. In London folk think that the correct price range for a share is in the £1 to £10 range. Just a little cultural thing and that's just what it is. Over in New York the assumption is that $10 to $100 is about right. That is is a fashion we can see from the way the ranges are different even if the belief that there is a range is the same. This also explains why most US ADRs of London stocks are 10 pieces – that then manages to be in that fashionable price range in both places.
If stock prices roar well ahead of this range then there may well be a stock split. A stock price in the $000s could be brought back to the $00s and this has been done recently by both Amazon and Alphabet (the owners of Google). If through some mischance, like not doing very well, the stock price falls well below this range then there can be a reverse stock split – where you used to have a handful of shares you now have the one. This should, mechanically, raise the stock price by whatever the reduction in the number of shares is.
This is what Alkido has just done, the change just taking effect. They've done a 1 for 17 reverse stock split. This should, mechanically, produce a 1,700% rise in the stock price. As we can see it has produced only 1,300%. So, that's a – roughly – 30% fall from where it should have been.
In the US markets there is also the danger that a stock price under $1 for a period (usually, 18 months to really take effect) can lose their NASDAQ quotation. So, to keep the quote the consolidation, the reverse stock split, has to happen.
This should produce a rise over and above the mechanical redenomination – the quote and liquidity is saved! Or, as in this case, might not – for there are always those who would hope that the stock price would be dragged up by the company actually doing something interesting rather than playing with stock numbers in issue.
Reverse stock splits should increase the value of the company but sometimes, as with Alkido stock, they don't.