AquaBounty Technologies (NASDAQ: AQB) stock should rise 2000% today. This 20x rise in AQB stock is not the result of some new found technique of growing salmon, unfortunately. Rather, it’s about a purely technical matter to do with the Nasdaq stock market itself. It also solves, nicely, that technical matter but doesn’t then solve the grander business problems. Which is rather the way with technical fixes, they fix the tech but not any other issues.
For those of us who don’t know AquaBounty: “ AquaBounty Technologies, Inc., a biotechnology company, focuses on enhancing productivity in the commercial aquaculture industry in the United States and Canada. It engages in genetic, genomic, and fish health and nutrition research activities. The company also operates salmon farms using proprietary technology. It offers AquAdvantage Salmon, a bioengineered Atlantic salmon for human consumption; and sells conventional Atlantic salmon, salmon eggs, fry, and byproducts.”
The problem is that, despite being around near two decades now, the company isn’t consistently and largely profitable. It’s got cash, debts, falling sales and losses in fact.
AquaBounty stock price from Google Finance
That stock price chart isn’t all that much of a surprise given the business performance. But it does produce a problem. The whole point of being on a stock market is to be able to raise capital. That’s a lot easier - and cheaper - on the higher level markets. But those two, Nasdaq and the NYSE for the US, insist upon a $1 minimum bid price. There’s just a cultural reluctance to believe that penny stocks are real and serious stocks.
So, to maintain the position on Nasdaq something must be done. Which is easy enough, simply declare that 20 old shares are now one new one. A one for 20 reverse stock split: “AquaBounty Technologies’ board of directors has approved a 1-for-20 reverse stock split of its common stock, to be executed at 12:01 a.m. on 16 October.”
This doesn't, not directly, change the market capitalisation of the company, just the number of shares that make it up. Therefore the stock price reacts mechanically, up 20x or 2,000%. Which does neatly solve that problem of being a penny stock and so maintains the Nasdaq listing. What it does not do, of course, is sort out the operating business which still faces falling revenues and losses. But perhaps solving one problem at a time, eh?
