- PolarityTE could lose it’s NASDAQ quotation
- Something must be done and doing something might increase value
- A reverse Stock split might do it so is this the explanation?
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PolarityTE (NASDAQ: PTE) stock has something of a problem. It’s been below that important $1 level since last summer, and that’s a danger. For a stock that stays “too long” below that $1 number has the possibility of losing its NASDAQ quote. That would mean relegation down to the OTC markets where there’s much less liquidity and raising capital is much more difficult. Both of those, obviously, produce a decline in value in a stock that looks like it might do that. It’s also possible to test this the other way, stocks often do pop when they come up from the OTC markets to a NASDAQ listing.
PolarityTE hasn’t been doing well this past month either. Let’s just say that the business performance hasn’t been all that great and leave it at that. This led to the need to gain access to more capital, and given the share price that was unlikely to come from the markets in general.
So, back in mid-March, PolarityTE issued some $5 million of securities to the one healthcare sector investor. An issue of preference stock which was convertible into common equity at $0.305. That’s sorta OK, but then the continuing decline in the stock price means that – while the possible conversion date hasn’t happened as yet – that the conversion is looking more remote. That’s not good for the capital structure of the company.
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So, last Friday, after close, we got the next part of the plan, Which is to have a special meeting on May 12 to discuss a number of things. Most are the usual, usual, approve pay for the directors, appoint the auditors, and so on. But the major one and likely the only that would need debating, is the proposal for a reverse stock split. Or, as we’d say in English, a consolidation.
At present this is all a bit hazy, the proposal is for anything between 1 in 10 and 1 in 25. That is, for each 10 (or 25, obviously) of the old stock held there would now be only the one.
The aim here would be to get that price firmly back up above the $1 level at which the NASDAQ quote risks being lost. That, in itself, adds value. As above, the greater liquidity of NASDAQ over the OTC markets does add value.
The other value addition here is simply fashion. Americans do just think that the “right price” for a stock is in the $10 to $100 range. Just as London seems to think that £1 to £10 is “right”. This is why ADRs for London listings tend to be of 10 shares. There’s no huge rhyme or reason for this, it’s just a cultural belief and important simply because it does exist.
The other, rather larger, question about PolarityTE is whether this playing with the stock issuance actually solves the more important business problems. Which is, of course, what trading positions should be based upon after the consideration of these immediate technical issues.