Prenetics (NASDAQ: PRE) stock should rise 1,500% today on Nasdaq. This is not because they have just found the ultimate cancer test or anything. It’s because they’re making a technical change to the capital structure of the firm. This is also a purely nominal price change, not a real one. No wallets will be fattened by this move - unfortunately.
The business line: “Prenetics Global Limited operates as a diagnostics and genetic testing company in Hong Kong and the United Kingdom. Its products include CircleDNA, a consumer genetic testing product; and Circle HealthPod, a rapid detection health monitoring device that offers COVID-19 testing solutions for professional use and home use. The company’s products also comprise ColoClear, a non-invasive FIT-DNA colorectal cancer screening test; Circle SnapShot, an off-the-shelf at-home blood test; ACTOnco, a comprehensive test that helps clinicians choose the optimal treatment for all major solid tumors;” and so on.
The problem is that this hasn’t been going all that well. Revenue’s growing, yes, running around $6 million a quarter now. But that’s still not grown into the cost base meaning the last results had a - $0.14 cents loss per share. Which rather explains this stock price chart.
Which leads to a technical problem that must be solved. Penny stocks are not loved on Wall Street. There’s a feeling that they’re not quite right - a good and proper stock has a price well above the $1 minimum bid for the main markets. In fact, be a penny stock for long enough and lose that Nasdaq listing. It’s therefore necessary to do something, that something is to declare 15 old shares to be one new one. A one for 15 reverse stock split: “Prenetics Global Limited (PRE) will effect a one-for-fifteen (1-15) reverse split of its Class A Ordinary Share. The reverse stock split will become effective on Tuesday, November 14, 2023.”
This doesn’t change the market capitalisation of the company, only the number of shares that make it up. Therefore the stock price reacts mechanically, rising 1,500% or 15x. This solves that minimum bid price problem which is why it is being done.
Of course, it doesn’t solve the basic business problem of how to grow sales to cover overheads but perhaps we can hope that they’re also working on that.
