Shares of lidar maker Luminary technologies (NASDAQ: LAZR) were trading sharply lower on Thursday after the company implemented a reverse stock split to avoid being delisted from the Nasdaq stock market.
As of 11 a.m. ET, adjusted for the split, Luminar shares were down about 10% from Wednesday’s closing price.
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The Nasdaq stock exchange requires publicly traded companies to maintain a stock price of at least $1 per share. If a company’s stock price falls below $1 for a period of 30 consecutive trading days, the exchange notifies the company that it is out of compliance – and that it has 180 days to come back into compliance.
Companies that receive such communications and do not expect any major bullish development within the 180-day period will often receive a reverse stock split to get back into compliance. A reverse stock split involves exchanging several shares under $1 for a single new share that (hopefully) remains well above the $1 limit.
Luminar received one of these notices on October 15. On October 30, the company’s shareholders approved a reverse stock split. That reverse split – in which fifteen old shares were automatically exchanged for one new share – took place after the markets closed on Wednesday.
So why is the stock down today? Because reverse stock splits in response to delisting reports are generally not bullish. Think about it: If Luminar had good reason to believe its stock price would rise sometime in the next few months, the company might not have worried about the split.
Year to date, Luminar shares are down about 80%.
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