Fathom Digital Manufacturing (NYSE: FATH) stock should jump 2000% at the open. FATH stock rising 20x is not the result of some new-found resurgence in the business. This is a nominal price change coming from a purely technical change, meant to solve a purely technical problem. Fathom needs to get the stock price up. Therefore they’re going to get the stock price up.
As to what’s done at Fathom: “Fathom Digital Manufacturing Corporation, a digital manufacturing platform, provides product development and manufacturing services in North America. It provides plastic and metal additive manufacturing, computer numerical control machining, injection molding and tooling, precision sheet metal fabrication, design engineering, and catering services. The company serves the technology, defense, aerospace, medical, automotive, and IOT sectors.” That doesn’t tell us whether it’s something obviously fabulous or a disaster. It’s one of those business descriptions that could go either way dependent upon how well the business is done.
As it happens, from the accounts, not all that well. Revenues are falling, there are restructuring costs, and, of course, losses. All of which is reflected, as it should be, in the stock price.
Fathom Digital stock price from Google Finance
The problem is that there’s a fashion, a culture, on the NYSE> Penny stocks are regarded as not quite the thing. It’s not that penny stocks are all fraudulent, it’s that fraud tends to go live in penny stock world. So, be a penny stock for long enough (about 18 months usually) and you’ll lose the NYSE quote. Something must be done - that something is to declare 20 old shares are now one new one, a one for 20 reverse stock split: “approved a 1-for-20 reverse stock split of the Company’s common stock that will become effective after the close of market trading on September 28, 2023.”
This doesn’t change the market capitalisation of the company, its overall value, just the number of shares that make it up. Therefore the stock price reacts mechanically, rising 2,000% or 20x. The listing problem with the NYSE is now solved.
As to why this needs to be solved, the reason for being on a stock market is to be able to raise capital. If you’re relegated down to the OTC this becomes very much more difficult and more expensive. So, maintain the NYSE listing in order to be able to raise capital. Which does lead to a further possibility which is that now the listing is secured perhaps there will be a stock issue to raise some more capital?