Shares of electric truck manufacturer Nikola (NASDAQ:NKLA) were trading sharply lower on Thursday morning after the company said in a regulatory filing that it will conduct a 1-for-30 reverse stock split next week.
As of 10:30 a.m. ET, shares of Nikola were down about 23.3% from Wednesday’s closing price.
Nikola’s reverse stock split will be more dramatic than expected
The upcoming reverse stock split isn’t exactly a surprise to shareholders, but one important detail is new. At Nikola’s annual meeting on June 5, shareholders approved a proposal that would allow Nikola to conduct a reverse stock split at a ratio between 1 for 10 and 1 for 30.
The decision to implement a 1-for-30 split, the most aggressive allowed under the adopted proposal, was made last week by Nikola’s board of directors and revealed in a Securities and Exchange Commission (SEC) submit on Thursday morning.
The split will take effect immediately after the US markets close on June 24, next Monday.
Why Nikola’s reverse stock split isn’t a good sign
Reverse stock splits are generally not bullish. They are typically executed when a company’s stock price falls below $1 for an extended period of time. Nikola’s stock hasn’t closed at $1 or higher since April 9.
Nasdaq requires companies listed on the stock exchange to maintain a minimum share price of $1. If a company’s stock price falls below $1 for 30 consecutive trading days, the stock exchange sends the company a formal notice that it has 180 calendar days to return to compliance. If not, it can be removed.
There are two obvious ways a company can get back into compliance: announce news that will cause its stock price to rise, or conduct a reverse split.
Nikola’s decision to implement a reverse split, and specifically a 1-for-30 reverse split instead of a 1-for-10 split (or something in between), suggests that the board of directors doesn’t see the truck maker’s stock price rising . his own soon.
That, along with some nervousness among investors following the electric vehicle startup FiskerNikola’s bankruptcy filing earlier this week is likely why Nikola’s stock fell sharply today.
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Nikola’s stock is falling. The board has made a grim decision. was originally published by The Motley Fool
