Local Bounti (NYSE: LOCL) stock will rise 1,300% at the close of play today. We should note that this is a purely nominal price change - it will be the derivative of it that actually matters. That is, the real price change will be by whatever amount different from 13 x the LOCL stock price changes by.
The reason is, of course, a reverse stock split. Local Bounti is a SPAC arrival on the markets about 18 months back. Sine then the price has gone from the usual $10 down to $0.40 - that's a 96% loss of value. It's an 87% loss over just the past 12 months. So, not a good idea for shareholders then.
The basic view of the accounts is that their cost of goods sold is about their revenues. Meaning that all overheads, selling, general, admin, plus their R&D, are losses. As a result they lose some $23 million a quarter - and they've perhaps $7 million in cash. This is, of course, not sustainable and we'll get to why that might be in a moment.
The effect here is that they'll need more capital soon enough. But you can't stay on the NYSE - where you can raise more capital easily - if you're below the minimum $1 bid price. So, as a penny stock you've got to do something - that reverse stock split. Just declare that 13 old shares are now one new and the price will rise 1,300%. Exactly what LOCL is doing, a 13 for 1 reverse stock split.
Local Bounti stock price from NASDAQ
As to why this isn't working out well, we have our views on that, Essentially, people are believing the hype too much. Local Bounti does vertical farming - hydroponics of lettuce etc. The idea is to have installations around or in the big cities, so the produce is local, fresh, has low food miles and so on. Well, OK.
This could, would, work if transport costs - and therefore food miles and all that - were a large part of the food chain costs. Smaller, higher capital, installations with low food miles could be more efficient than large farms in the boonies plus trucking costs. Could be - but that then means that we can find out. The answer is that they're not more efficient. Local Bounti is selling against the much larger supply of traditionally farmed lettuce (for example) and it's losing vast amounts of money doing so. Because the common assumptions - that food miles and transport - are a large part of the cost chain simply are not true.
Yes, we know, the society as a whole shouts, screams, “eat local!” to save resources and all that. But eat local doesn't save resources because it's more expensive to grow the food locally than it is to transport it from the other production methods.
In our view the entire idea is based on a misconception of the economy itself. But still there's that reverse stock split for everyone to console themselves with.