RE:One good decision TH could make right awayFor the first time in years I agree with the CFO...A reverse split would be a disaster at least in the short term...that would be telegraphing the market that they have no hope of achieving a SP suitable for institutions or the likes.....Companies have a lot of success with stock splits but I woulkd have a hard time recalling a successful reverse split except maybe those resulting from a restructiring after filing for Chapter 11
SPCEO1 wrote: When I was arguing with the CFO on my call a couple of weeks back, implementing a reversesplit to push the share price into double digits was a big part of that. Here are just some of the problems investors face when the stock price is so low:
1.) TH might have a great story but its sub-$5 share price makes it uninvestable for many institutions. They will not even look at it so all the demand for TH shares that might otherwise be present is wiped out leading to a lower share price, worse financiing outcomes and lower long term value creation for current shareholders.
2.) Retail brokers face similiar restrictions. They are not allowed to even approach their clients to ask them to buy TH's stock when it is below $5. They have to contort things to show the client requested the purchase of TH rather than they suggested it and they take a risk with their internal compliance staff every time they try to work around these restrictions on buying low priced stocks. Again, potential demand for TH shares is destroyed, the next financiing is therefore done at a sub-optimal price and long term value for current shareholders is destroyed.
3.) Regulators also visit money managers and brokers regularly and inevitable ask for an explanation as to why you own a "penny stock" for your clients. A good explanation can be given but noone really wants to be in that place where you have to answer those questions.
4.) The narrative surrounding a low priced stock starts out in a bad place. A low share price indicates a troubled company to most investors on first glance and they move on without giving the stock the time of day. If I am Paul, I would do a reverse split in a heartbeat just to send a message to staff and investors that this in no penny stock that I am in charge of! TH is much better than that and our stock price will reflect that reality!
The CFO said that if they did a reverse split, the stock price would quickly revert to its origianal price. He has told me this in the past as well and it is really a terrible argument against a reverse split for TH. If he were the CFO of CYDY, I would agree with him, but TH is a real company and that simply would not happen. Say TH did a 5 for 1 reverse split, does anyone really believe the stock price would quickly fall from $12 back to the current level. That would leave the market cap at $46 million, well below the sales of the company. So, the CFO's arguament is foolish on its face and caused me to react accordingly.
My sense is Paul had no idea what we were even talking about when the people on the call explained to him the problems we face as investors because the share price is so low. It is not within his sphere of understanding based on his background. But his CFO should know better and give better advice.
Doing a reverse split would cost some money and perhaps they know the stock will be at $12 soon anyway because of what they have going on in cancer. But it would still send a message that TH is no stinking penny stock and would remove the many problems associated with having a low pricecd stock noted above which can significantly undermine the long term value of the company. It is an esy step to take, will help create a more positive narrative around the stock and will therefore make the next financing more successful. If so, whatever cost is incurred in doing a reverse split would be quickly recouped.