Meanwhile, massive trading in hundreds of imploded stocks that still haven’t been delisted inflates overall market trading volume.
By Wolf Richter for WOLF STREET.
Our pantheon of Imploded Stocks, which we started in the spring of 2021 as this stuff was coming apart, is full of stocks that, after imploding, did massive reverse stock splits so that the share price would go back above $1 in order to keep the shares from getting delisted. Most of them are traded on the Nasdaq. Many are SPAC or IPO creatures of the free-money-era.
Take online used-car dealer Vroom. It has been one of our favorite Imploded Stocks for a while. On January 23, it announced that it would shut down its used-car dealer business, 3.5 years after its hype-and-hoopla IPO, lay off 90% of the employees involved with its used-car dealer business, wholesale its remaining inventory, but keep its subprime auto-lending platform and its used-vehicle listing platform. Its shares [VRM] had kathoomphed to $0.31 at the time.
To keep the stock listed on the Nasdaq, Vroom did a 1-for-80 reverse stock split effective on February 14: Your 80 shares would become 1 share, and that 1 share would be worth 80 times the pre-reverse-split value. But shares have continued to collapse.
Today, those reverse-split-adjusted shares trade for $10.36, instead of 13 cents without reverse split.
Vroom went public in June 2020 at $22 a share and then surged to $73.87 by September 2020. This $73.87 high, adjusted for the 1-for-80 reverse split, then became $5,909. At today’s price, shares collapsed by 99.8%. Charts like this are just hilarious:
The boom in reverse stock splits.
Among the other prominent members of our Imploded Stocks with reverse stock splits is WeWork: it did a 1-for-40 reverse stock split in August 2023. In November 2023, WeWork finally filed for bankruptcy.
Another one of our infamous imploded reverse-split heroes, AMC Entertainment, is still out there wreaking havoc on investors. The stock has collapsed by 99.4% from its 1-for-10 reverse-split adjusted high of $726.20 in February 2021 to about $4.50 today.
I mean, this stuff can be hilarious. Bit Brother [BETS], a Chinese company that went public via IPO in 2015 on the Nasdaq as “Urban Tea” and pivoted of course to crypto and became “Bit Brother,” announced a 1-for-1,000 reverse stock split in early January 2024, after it had already done two prior reverse splits, a 1-for-15 in December 2022, and a 1-for-10 in August 2020. Its shares now trade at $2.15, down by 99.9999% from the three-reverse-splits-adjusted $4.2 million shortly after the IPO. The Nasdaq doesn’t really care what kind of rip-off garbage gets listed; it just rakes in the fees. Eventually Bit Brother might get delisted.
In 2023, there were 494 reverse stock splits of stocks listed on the exchanges, the most in the data going back two decades, and up from 288 in 2022, and up from 102 in 2002, according to the WSJ, citing S&P Global Market Intelligence.
The boom in imploded stocks.
As of yesterday, there were 493 stocks trading below $1 on exchanges, most of them on the Nasdaq, and not counting the already delisted stocks trading over the counter, according to the WSJ, citing Dow Jones Market Data.
In early 2021 – remember that infamous February 2021 after which all this stuff started coming apart – well, that was peak consensual hallucination, as we have come to call it, and at that peak, fewer than a dozen stocks were trading below $1, according to the WSJ.
Normally, the companies would be delisted from the Nasdaq and banished to over-the-counter trading if they trade below $1 for a while. But there is a grace period and appeals, and it can take a year or longer before a stock gets delisted from the Nasdaq. And the slow delisting makes sense for the Nasdaq because it makes money off those stocks while they’re listed.
Imploded stocks inflate trading volumes.
Before its 1-for-1,000 reverse stock split, Bit Brother made history in December 2023, when its shares, worth then about 2 or 3 cents, suddenly traded in huge volume. On December 27, trading spiked to 3.5 billion shares (billion with a B), each worth a couple of cents, so the dollar amounts were small, but this trading volume accounted for 28% of total market volume that day, according to the WSJ.
Other penny stocks are also trading at very high volumes. For example, on January 16, trading in Phunware [PHUN] hit 1.6 billion shares, accounting for 12% of total market volume that day.
And there are nearly 500 stocks out there below $1. So the trading volume on the Nasdaq, that everyone looks at as a sign of market dynamics, is massively inflated by these ridiculous penny-stocks that are so slow in getting delisted.
“Fueling these frenzies are individual investors who use zero-commission trading tools to pile into stocks that get buzz on social media,” the WSJ says.
“When such stocks trade for pennies a share, it is easy for day traders to place enormous bets on them. Then the high volumes themselves become a source of buzz, with the stocks appearing on leaderboards of heavily traded stocks where other investors take their cues,” the WSJ says.
Ah yes, what we’ve come to call consensual hallucination. We mean, there are no victims here, just people seeking fun and thrills and getting cleaned out in the process. But it is disconcerting that the universally cited market volume numbers are becoming meaningless.
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The post We Have a Boom in Reverse Stock Splits to Keep the Ballooning Imploded Stocks Listed a While Longer: This Stuff is Just Funny appeared first on Energy News Beat.
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