Owlet (NYSE: OWLT) stock should rise 1,400% at the open today. OWLT stock is rising not because the company has suddenly discovered how to be profitable, rather because there's a purely mechanical change going on. A redenomination of the number of shares in issue, something that doesn't change - not directly at least - the market capitalisation. If there's the same corporate valuation but a different number of shares making it up then each share must be worth a different amount. That's also all that's happening here.
Owlet is in one of those niche markets that unless we're directly involved we'd never think about. OWLT: “Owlet, Inc. operates as a digital parenting platform in the United States. The company's platform focuses on giving real-time data and insights to parents. It offers smart monitoring products, which includes Dream Sock accompanying Owlet Dream App allows parents to view their baby's sleep quality indicators, such as waking, heart rate, and movement; and the Dream Sock Plus based on same core technology as the Dream Sock, which is designed to grow with the children from new born to five years through an expanded fabric sock sets primarily for the U.S. and Canadian markets.” Who, other than parents worried about cot death, would even dream that such a niche exists? But that's what they do.
The problem is that they don't do this all that well. Losses seem to run at $10 to $12 million to $12 million a quarter. It's not, in fact, wholly obvious that they're a going concern - liabilities seem to be running ahead of assets. So, as we might expect, the stock price has not been doing well. Down 83% over the past 12 months in fact. And that's where the problem comes in.
The NYSE just has this cultural thing. Stocks trading under $1 are penny stocks - clearly and obviously. But with that comes all sorts of connotations of manipulators and the dodginess of the “penny stock market”. So, there's a $1 minimum bid price to stay on the NYSE - fail that and be relegated to the OTC markets. But the NYSE is a much, much, better place to try to raise new capital than the OTC markets - so, companies aim to keep that NYSE listing.
The solution is to declare that what used to be 14 shares are now just the one - a one for 14 reverse stock split. Just what Owlet is doing, to take effect today. As at the top, this doesn't change the market capitalization, just the number of shares that make it up. So, mechanically, OWLT stock should rise by 14x, or 1,400%, this morning at open. That doesn't solve the business problem, of course, but it does keep the NYSE quotation.
