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ACTC and a reverse stock split - Albuquerque Stock Market | Examiner.com
ACTC and a reverse stock split
May 13th, 2011 5:29 pm MT
Michael Ray
Albuquerque investors, like all stock market investors, have to take into account and analyze all the potential risks that might affect their portfolios. Whether one owns a company that sells fertilizer, wireless headphones, or automobiles there is always a component of risk to consider. Albuquerque investors, who have made the investment in penny stocks like Advanced Cell Technology (ACTC), have one extra risk to consider which is a reverse stock split. Before looking at the specifics as it relates to ACTC, let?s review what a reverse stock split is and its impact.
A reverse stock split is when a company or corporation has decided to reduce the amount of outstanding shares to increase their stock price. The amount of the split can greatly vary depending on how many shares the company is looking to rein in. For example when a company declares a 1-100 split that means that after the split a shareholder will only have 1 share where they originally had 100. When the split occurs the market capitalization of the company stays the same. The concept of the split is easy to understand. It is the reasons for a split that can be a bit more involved. The reasons for a split can vary but the most common examples are:
A penny stock can move up to the NASDAQ stock exchange by increasing the price per share of their stock.
A company trading on an exchange might do a split to stay on the exchange and avoid being delisted for not meeting the minimum price requirement of their stock.
A company wishing to delist to avoid SEC reporting requirements will do a split to reduce the number of shareholders to quality for the delisting.
A company?s stock value might be so low and out of favor (shadow stock) that they do the split to increase awareness.
No matter the reason, usually the reverse stock split is viewed as being negative. Once announced, the stock price usually drops as investors sell off their shares. Only an instance where a split is done to move a stock to trade on a major exchange is viewed as a positive event.
Now the question is how this comes into play with ACTC. Until recently the mention of a reverse split had not been brought up dealing with the company. That changed recently when the CEO, Gary Rabin, was asked about his thoughts on the matter on May 3, 2011. In his reply he stated that he was concerned about the large number of outstanding shares that resulted from the lack of funding in years past. He also stated that it was in ACTC?s best interest to trade on a major exchange and get off the OTCB board. Lastly, he stated that he was concerned about a reverse split but would do one from a position of strength to qualify for such a listing. All of a sudden the idea of a reverse split was thrown onto the table and was discussed wildly across many investment community circles. Mr. Rabin?s statements were vague and gave no clear direction on what was being discussed in the inner management circles at ACTC. What was presented was that the usage of a reverse split is an idea that is on the table. Although the usage of the reverse split in this instance might prove to be positive, it still casts a shadow of negativity across the stock.
The real question now is will the split happen. Currently no one knows the answer to that question. There is no question that ACTC and Mr. Rabin really want to have the stock traded on a major exchange and available to institutional investors. To do this they will need to get the stock price well north of $1 per share to qualify. At the time of this article the price is roughly $0.20 which is a long way from their goal. The ace up the sleeve for the company is the number of catalysts that are getting ready to come into play. The first tests and injections on the macular degeneration trials are very close at hand. Any positive results or an announcement of a joint venture partner will move the stock much higher. The question is how high will it move on those catalysts. The answer is unknown but if it did move the stock price to the $1 level, is this position of strength where a reverse split might be enacted? If so then one has to wonder how the price per share would react getting lots of positive news coupled with an announcement of a reverse split. Only time will tell.
In conclusion, one can feel at ease knowing the decision to enact a reverse split is not being taken lightly. ACTC?s management has stated that they will not do a reverse split just for the sake of doing it. That being the case, if ACTC has released all its information and placed all its cards on the table, and the price settles anywhere close to the $1.00 level then the odds of the split is high. ACTC will do what it takes to take their stock to the next level. One must also consider as to what time frames ACTC might be working under to move their stock to that next level. If they are in no rush then they could wait for the stock to appreciate on its own, but if they feel they need to act then the split is likely to occur quickly. If the company is successful in their mission though, a reverse split will not mean much as their practices become the new standard of care on many medical fronts. The best possible outcome would be for the stock price to increase at a rapid rate and settle at a price much higher than what is required to list on a major exchange and qualify for institutional investing. A price per share of $5 might be a good staring place as ACTC could trade on the NASDAQ, be purchase by large investment institutions, and have options be brought onto the scene. With 1.5 billion shares though that would value the company at $7.5 billion. The question is if the market will support that valuation at that point in time. The 1.5 billion shares may still be a concern but could be easily handled in other ways like a share buyback program. In the end the Albuquerque investor might be concerned about a reverse stock split, but the real concern is if ACTC can prove their therapies work. If they can do that then the effects of a split are inconsequential compared to the billions of new revenue dollars pouring onto the financial statements which will take the stock price to much higher levels.