Sarcos Technology and Robotics (NASDAQ: STRC) stock should rise 600% at the open this morning. STRC stock is going to rise for a purely technical reason and in nominal terms only. This will not, sadly, make up for the 88% loss over the past 12 months - that's real money that's been lost.
The basic problem for Sarcos is that it's really just not doing much business. Perhaps it's true that the products are really great - those robots, Guardian and so on. Maybe it's also true that things are going to turn around and the products will really start to fly off the shelves. It's just that it's not happening yet. From the results last quarter saw $2,3 million of revenue, which is 228% up on the year before. Which is great, obviously, but $2.3 million is pretty small beer for a corporation with a market capitalisation around the $220 million level. Expected revenue for the entire year is $25 million or so - a valuation of 10x revenue (rather than 10x profit, or even GP) is pretty high. Thus that 88% decline in the STRC stock price over the past 12 months.
Sarcos Technology and Robotics stock price from NASDAQ
The result of this fall in the stock price is that Sarcos is well below the $1 minimum bid price necessary to stay on NASDAQ. This is purely a fashion, a cultural thing. The New York markets think that penny stocks are the home of charlatans and knaves. Therefore you cannot stay on a major exchange as a penny stock. Sarcos clearly wants to stay on NASDAQ - it might well need to raise more capital at some point.
There's a solution to this problem - the reverse stock split. Simply declare that some number of shares are now some other number of shares. As with STRC, a 6 for 1 reverse stock split. What used to be 6 pieces of stock now become just the one. The price therefore mechanically changes by that factor of 6xx, or 600%. And so is the NASDAQ quotation saved.
Note that this doesn't actually change the business, its sales or margins, and so doesn't change the value of the company. It's a purely nominal price change undertaken for reasons of fashion and cultural practice, nothing else.
