It’s rarely a happy occasion when a company announces a reverse stock split. That’s because this typically means that it’s having trouble compiling with minimum share price listing requirements on an exchange.
This explains the lackluster performance of genetic-testing specialist GeneDx Holdings (WGS 1.26%), which traded flat on Friday, while the S&P 500 index recorded a 0.8% gain. Although the reverse stock split was entirely expected, few investors were happy about it.
That morning before market open, GeneDx announced that its board of directors approved a 1-for-33 reverse stock split, which will affect its Class A common shares. The first day of trading of the split-adjusted stock will occur next Thursday, May 4.
While a stock split often affects sentiment on a company, it’s important to note that it does not change its underlying capital structure. Its market cap remains basically intact; only it’s divided into either fewer or more shares.
As is often the case with reverse stock splits, GeneDx is making this move in order to regain compliance with the minimum bid price to remain listed on a stock exchange — in this case the Nasdaq (NDAQ 1.00%). This piece of financial engineering was approved by shareholders earlier this month, although the exact ratio was left to the board’s discretion.
The result, the 1-for-33 split, is close to the middle of the previously proposed 1-for-10 to 1-for-50 range.
GeneDx has other problems besides a weak share price that requires a reverse stock split. The company is consistently loss-making on the bottom line, and it recently projected a decline in revenue for 2023. It needs more than financial engineering to right its ship.