American Rebel Holdings (NASDAQ: AREB) stock will jump 2,500, or 25x, at the open Tuesday. This is a purely nominal change, something that makes no direct difference. Unlike the 21% price move in American Rebel when they announced this plan, now that was a real price change, one that affects wallets. As ever this means that we've got to note the difference between nominal price changes and real price changes.
American Rebel Holdings was really a safe maker but one that has now branched out into other items. If you've a brand and a distribution network then why not? Eh? That expansion now includes: “home, office, and personal safes, as well as vault doors; concealed carry backpacks; and a range of concealed carry jackets, vests, coats, and T-shirts for men and women. It also provides accessories, such as back-over and back-under handgun hangers, ballistic shields, safe light kits, mag minders, moisture guards, and rifle rod kits and rods.” You get a reputation for things that are “safe” that can indeed be expanded.
The problem here is that this adventure is not, currently at least, profitable. Turnover is around the $4.2 million mark a quarter, losses some $225k. This isn't as a result of some grand investment in R&D, or expanding market position. It really is just gross margin isn't covering costs. The stock price is down some 70% and change over the past 12 months as a result of that. And it's that which then produces the problem which Tuesday's action is meant to solve.
American Rebel Stock price from NASDAQ
The American markets are in the grip of a fashion. One that says that penny stocks are not quite right. In fact, they verge on the disreputable - it's correct that the illegalities and immoralities on the markets are concentrated among penny stocks, but not that everything to do with them is illegal or immoral - and this then causes a reaction. You cannot be on a major exchange as a penny stock. There's a $1 minimum bid price for both NASDAQ and the NYSE.
So, stock price falls over time on the back of business performance, this causes a problem. The answer is the reverse stock split. Simply declare that 25 pieces of the old stock are now one of the new. A 25 for 1 reverse stock split - exactly what AREB is doing. This doesn't change the value of the company, just the number of shares that make it up. Thus, mechanically, the value of each share rises by 2,500%, or 25x.
This doesn't solve the business problem of not making a profit. But it does keep the company on the stock exchange just in case it can do that at some future date.
