Blue Star Foods (NASDAQ: BSFC) stock should rise 2,000%, or 20 times, at the open today. That it fell 16% yesterday in anticipation of this does not bode well for the reaction. For while this is a necessary technical move by BSCF the end result is not always quite what is hoped. While the aim here is to get the price up the result can be that while the nominal price rises the real one falls.
Blue Star hasn't been doing all that well - to put it mildly - in recent years. They were a crab meat processor and packager which then expanded into aquaculture of salmon. Fair enough, it's just that that hasn't been working all that well. Their latest annual report shows gross revenue of perhaps $13 million and losses of $13 million. Not a set of results that are likely to lead to folk building up that stock and the Q1 results don't make any better reading - worse in fact. The result of these, aha, results, means that the BSFC stock price is down 94% over the past 12 months and it's a pretty much total (well, OK, 98%) loss over 5 years.
This then poses a problem for Blue Star, it's likely to lose the NASDAQ quotation and be relegated to the over the counter market. Where there is little liquidity and very little chance of raising more capital. Given that a loss making company is going to need more capital this would be a bad idea.
Blue Star Foods stock price from NASDAQ
The reason for this specific problem is simply fashion on the American markets. There's an idea that penny stocks are where charlatans go and play with other peoples' money. So, and therefore, there's a $1 minimum bid price on both the NYSE and NASDAQ. You must be above that, over time, to keep the listing on the main exchanges. If the stock price, as with Blue Star, is rumbling along at 6 and 7 cents then something must be done.#
That something is to have a reverse stock split. Simply declare that what used to be 20 shares are now one - a 20- for 1 reverse stock split. This doesn't change the value of the company, nor of any specific holding in it. It does change the number of shares that makes that up - which means that the stock price changes mechanically.
It is possible that everyone sighs in relief and bids up the stock because that listing is now saved. Or, alternatively, the greater liquidity of the higher priced stock leads to more selling out of such a dog. The real price change is the amount by which Blue Star changes other than the 2,000%. And what that real price change will be just depends.
