Nikola (NASDAQ:NKLA) has been working to grow a customer base for its hydrogen-powered electric trucks. The company even announced a major order for electric vehicles (EVs) last month.
But investors aren’t impressed and Nikola shares have struggled. That has led to a falling stock price and now a decision to do a reverse stock split. The details for a reverse stock split were announced this week, but investors already knew one was coming. Still, the reaction was that Nikola shares plunged more than 30% as of Thursday afternoon trading, according to data provided by S&P global market information.
That’s because one detail from the announcement did not generate new confidence among investors.
Stock splits are not always positive
In early June, Nikola shareholders approved a reverse stock split at a ratio between 1 for 10 and 1 for 30. The board has approved the maximum allowable ratio and the 1 for 30 reverse split will take effect at the start of trading on Tuesday June 25.
Investors reacted negatively because it indicates Nikola’s board doesn’t have much confidence that the underlying business can help boost its stock price. The ultimate reason for the split was to comply with the rules of remaining listed on the Nasdaq Scholarship. Shares cannot trade below the $1 per share level for an extended period of time before being delisted.
Just last month, Nikola announced an order for 100 of its hydrogen fuel cell trucks for use in transportation operations at ports in California. That is a use case that the company believes suits the trucks well. Nikola has already established hydrogen fueling station infrastructure in Southern California to support this use case.
But the hydrogen infrastructure will be expensive. Even with the announcement of the new order, it appears that the board still wanted a cushion for the stock price to remain listed on the Nasdaq exchange in the long term. That doesn’t give investors confidence either.
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Howard Smith has positions in Nikola. The Motley Fool recommends Nasdaq. The Motley Fool has a disclosure policy.
Why Nikola Stock Is Getting Crushed This Week was originally published by The Motley Fool
