ShiftPixy (NASDAQ: PIXY) stock should rise 2,400% at the open today. The 24x rise in PIXY stock is the result of a purely technical change, meant to solve one specific problem. It’s also a nominal price change, not a real one. What the real price change will be is uncertain - for the stock price doubled on the announcement that this change was going to take place. Which is unusual and means that we don’t, not really, know what the overall effect is going to be here.
Last week at ShiftPixy: “Shiftpixy (NASDAQ: PIXY) stock is up some 75% yesterday and premarket. PIXY stock is rising because the company has announced a reverse stock split. Which, well, yes, a reverse - a consolidation to Brits - is supposed to add value to a company. But 75% merely on the announcement that this entirely technical operation is going to be undertaken? We might think that that’s a tad excessive. In fact we, we do think that’s a tad excessive.”
To our surprise that rise in the PIXY stock price actually held:
ShiftPixy stock price from Google Finance
As to why this exercise, that’s fashion, or perhaps culture. The New York markets think that penny stocks are somehow disreputable. It’s not that all penny stocks are run by fraudsters, far from it. But it is true that when there are frauds going on they tend to be in penny stocks. So, there’s an insistence that as a long term - over 18 months or so - penny stock you lose the Nasdaq or NYSE quote and get relegated to the OTC. This means a loss of liquidity and makes raising more capital hugely more expensive.
There is a solution to this. Simply declare that 24 old shares will now become one new one - a one for 24 reverse stock split: “to effect a one-for-twenty-four (1:24) reverse split of the Company’s issued and outstanding shares of Common Stock, as further detailed in the Company’s definitive Schedule 14C Information Statement filed on September 1, 2023, Articles of Amendment of the Company’s Amended and Restated Articles of Incorporation will become effective as filed with the Secretary of State of Wyoming. The new reversed shares will begin trading on Nasdaq on October 2, 2023.”
This doesn’t, not directly at least, affect the market capitalisation of the company, just the number of shares that make it up. Therefore the stock price should react mechanically, up 24x or 2,400%.Clearly, such an announcement can affect the stock price indirectly, thus the 100% rise last week on that announcement.
We tend to think that 100% is a bit too much here. We’d not be surprised to see that the overall rise is less than that supposed mechanical 2,400% today. So, a large nominal stock price rise for PIXY but quite possibly a real price fall. We don't predict this note, just wouldn’t be surprised.