Kaixin Auto Holdings (NASDAQ: KXIN) stock will rise 1,500% at the open this morming. KXIN stock rising 15x is, sadly, a purely technical move. This is not a real price change that will fatten wallets. As such it’s not something we want to try trading off, but it is something we need to note.
As to what’s done at Kaixin: “Kaixin Auto Holdings primarily engages in the sale of domestic and imported automobiles in the People’s Republic of China. It focuses on automobiles brands, such as Audi, BMW, Mercedes-Benz, Land Rover, Bentley, Rolls-Royce, and Porsche.” Well, selling luxury cars into a fast growing economy, that should work, right? Especially one with high inequality and also grand displays of social status. Sadly, not really been working out that way, the stock is 70% down this year, 97% since IPO back in 2019.
True, they’re now talking about making their own mini-sized EV, have purchased a company to do that. But it’s the stock price performance that matters to us here.
Kaixin Auto stock price from NASDAQ - note this is is already post-split
The problem is that there’s a fashion, culture, in the US stock markets. Penny stocks are seen as disreputable, possibly even fraudulent. It’s not - not at all - that all penny stocks are such. But when there is fraud or manipulation it’s usually to do with penny stocks. So, you can’t be on the NYSE or Nasdaq as a long term penny stock. Something must be done
That something is simply to declare that 15 old shares are now one new one - a one for 15 reverse stock split: “Kaixin Auto Holdings (KXIN) will effect a one-for-fifteen (1-15) reverse split and par value change of its Ordinary Shares. The reverse stock split and par value change from 0.00005 to 0.00075 will become effective on Friday, September 15, 2023.”
This doesn’t change - not directly - the market capitalisation of the company, just the number of shares that makes it up. Therefore the stock price reacts mechanically - up 1,500% or 15x. That solves the penny stock problem. Of course, there’s still the problem of making a profit in the business but that’s another matter.