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Modular Medical Drops 62%, Jumps 98% On Stock Issue And NASDAQ Listing

Tim Worstall
Tim Worstall trader
Updated 11 Feb 2022

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Key points:

Modular Medical Inc (NASDAQ: MODD) earlier (OTCQB: MODD) stock has been on a real roller coaster rise this past week. The issue being the issue of substantial new stock plus an upgrade of the company’s listing to NASDAQ from the OTC boards.

At one point Modular Medical stock has lost 62% of value upon the week and today, premarket, it has gained 98% at pixel time – having been as high as 290% up. Clearly, the market is having problems in digesting the import of the varied moving parts of the announcements here.

It has to be said that Modular Medical has had some interesting stock movements over time. Only last November they had a one-for-three reverse share split. Given that they already met NASDAQ requirements by stock price it’s not obvious why they did this.

We should also note that Modular Medical is on the small side for a listed company. Very small side in fact. At the last reporting date total assets were only in the $1.4 million range. That is indeed one point four, not fourteen. Total market capitalisation perhaps $23 million just before these immediate announcements, which really isn’t large at all.

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Which is rather what explains the size of the moves in the Modular Medical stock price given this new stock issue. For the total funds raised are around $15 million. Which is a big stock raise on that $20 million-odd Modular Medical capitalisation. Yes, it sorts out the balance sheet nicely and so on but raising new capital of 75% of total market valuation is a big ask.

Which could well be why the stock price fell so badly earlier in the week. Simply asking for a lot of new capital is likely to do that.

The bounce again in the stock price at Modular is likely from further consideration of that capital raise. There is the move up to NASDAQ to consider for example. This will mean greater liquidity in the company’s stock and that makes it more attractive for the usual technical reasons. It’ll also make future capital raises easier.

Finally, a capital raise like this concentrates attention on such a small company. There could be a certain amount of buy in to the Modular business plan simply by it being brought to greater attention.

For the immediate future of the Modular Medical stock price we should probably look to technical issues. The long-term business plan, actions off into the future, will of course be the determinants of the long-term price for the stock. But in the here and now it matters how well that new stock is placed.

The Modular Medical stock offering is underwritten so who ends up with the stock matters. If the underwriters are sitting on stock they couldn’t get away then that will dampen future price rises – any significant rise will lead to underwriters selling into that rising price. On the other hand, if it’s all placed with secure long-term investors then we might well see upward movement being sustained.

Given that the stock has been issued and paid for – it’s underwritten recall – then the short-term determinant of the price at Modular Medical is going to be who has the stock just issued.

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