MSP Recovery (NASDAQ: LIFW) stock is up 230%. Quite what is driving LIFW stock up that much is something of a mystery. The last direct news from the company was a week back and it shouldn’t take that long for news to affect a stock price. What we think is happening is that on the back of that last announcement there’s a certain momentum trade developed. The problem with that always being that none of us ever knows when the momentum is going to run out.
The business line is: “MSP Recovery, Inc., doing business as LifeWallet, operates as a healthcare recoveries and data analytics company in the United States and Puerto Rico. The company offers claims recovery services, including services to related parties or third parties to assist entities with pursuit of claims recovery rights. It is also developing LifeWallet, a platform for real-time analytics at the point of care which helps in identifying the primary insurer and assisting providers in receiving customary rates for accident-related treatment.”
There’s more to it than that. There have been mutterings - and admissions - of not quite proper accounting. That’s led to a class action lawsuit and then its dropping.
MSP Recovery stock price from Google Finance
There are no prizes to be won by using that stock price chart to guess when the accounting problems were first announced.
The specific and detailed problem is that the stock price means there’s a serious risk of being delisted from Nasdaq. The stock value on the OTC would be significantly lower and raising capital would be very much harder. Nasdaq has a $1 minimum bid price requirement.
So, something needs to be done and the normal thing is to have a reverse stock split. Simply announce that some number of old shares are now some smaller number of new stock. The stock price then reacts mechanically by rising by whatever multiple the reverse stock split is.
MSP Recovery has announced that they’re going to do this, that the shareholders have approved it. We don’t know the date nor the ratio as yet but we do know they’re on it. It’s possible that the LIFW stock price rise is relief that the issue is finally being addressed. But we think it more likely that this is a little bit of buying attracting some more - a momentum trade. As we say, the difficulty with those is knowing when it’s all going to stop.