Stronghold Digital Mining (NASDAQ: SDIG) is one of those companies that really was all the rage 2 years back, up at $30 a share and more. Last night it was at $0.69 - yes, that's 69 cents. 98% value destruction in a bit over two years. Not a good record at all.
The reason why, well, it's a bitcoin miner. Which has rather fallen out of favour as it looks like crypto isn't going to take over the world. But more than that, energy prices have been rising as the bitcoin price falls - margins do undergo some compression if your major cost rises as your output revenues fall. Not only that, many other miners came into existence so competition was higher and so on.
We should also note that Stronghold has been pretty inventive along the way. They run their own coal waste (ie, burning the rubbish that's not worth transporting) plants to generate the electricity required which lowers their costs. They're certainly keeping at it. But still, the sector, there's no premium any more for being a crypto-miner, far from it in fact.
Stronghold Digital Mining share price from NASDAQ
The specific issue today is that the value destruction dropped that stock price down to 69 cents. Which the observant will note is below the $1 minimum bid price on NASDAQ. So, something must be done to get it back up again or the listing will be lost. Off to the wastes of the OTC market. As to why, well, different stock markets just have opinions on what a stock price “should be”. For the US markets a respectable company should be in the $10 to $100 range. No real reason, that's just the culture. Anything under a $ is a penny stock, which it is of course, but this comes with all sorts of connotations of being associated with Wolf of Wall Street types. So, you can't be on a respectable exchange if you're under the buck.
The solution is to have a reverse stock split - a consolidation to Brits. Simply declare that 10 old shares are now on new share - a 1 for 10 reverse split which is exactly what Stronghold has just done. This should not - not alone - change the value of the company or of any particular shareholding. But if the number of shares is changed then so is the price of each share - exactly what is being aimed at.
So, a 1 for 10 reverse split, the share price should go up 1,000%. But the ticker is showing that Stronghold is up 800% (actually, 821% at pixel time). So, if it should have been 10 times, it is actually only 8 times, then that's a 20% decline in real value.
Which is how we get to that headline. The nominal price at Stronghold is up 800%, the real price is down 20%