|SOS Reverse SPlit: As SOS stock was consistently falling for the last year, it received notice from the exchange stating a period of six months.|
SOS Limited (NYSE: SOS) is one among many stocks hit hard by the bearish market sentiments. For blockchain enthusiasts, SOS Limited was a good place to invest, as it provides data mining and analysis services on the blockchain. It is also engaged in mining, blockchain-based insurance, and security services. But last year, the prices of cryptocurrency fluctuated and as a result, SOS has had very difficult time on NYSE and other stock exchanges. It has been one of the most shorted companies on Wall Street.
While today SOS Limited stock is a penny stock, it was not the case couple of years back. SOS stock debuted on NYSE in April 2017 at the stock price of $80, it went on to touch $113 within a couple of months in October 2017, but the rally did not sustain and it has been a major downtrend since then. The stock price has eroded 99.77 percent of its value since its debut, proving to be a disaster for investors. Out of this 99.77% fall, 95.38% fall has come in last year. On 10th August 2021, it was still trading at a fair price of $30, but the last 12 months have been the worst for the company and the share price.
In this article, we will learn about the reverse split of SOS stock due to this downfall, the reasons for this major downfall and what are the future prospects of the company and stock.
SOS Reverse Split: Facts About the Reverse Split
The reverse split is meant to avoid delisting from NYSE- The downfall led the share price below $1 for the first time in December 2021. As the compliance standards of New York Stock Exchange (NYSE), the last traded price for the share should be above $1 in last 30 days. As SOS share price was constantly trading below $1, it received a non-compliance letter from the exchange on January 14, 2022 giving them six months’ time to comply with the share price requirement. As per NYSE rule 802.01C, the trading price of the compliant company should be above $1 on the closing day of the calendar month and the average price over 30 days must also be above $1. As SOS stock was consistently falling for last one year, it received notice from the exchange stating a period of six months. If SOS Limited would not comply with the requirements in first six months, they would have got another extension of six months, post which the stock would be delisted from the exchange. The company initiated the reverse split to avoid delisting.
The ratio is 1 for 50 for the reverse split- As the clock was ticking for SOS Limited, it announced on June 22, 2022, about the reverse split, which got effective from the morning of July 6, 2022. It changed the ratio of its American Depository shares or receipts (ADR) from one ADR representing 10 Class A ordinary shares previously to one ADR representing 500 Class A ordinary shares from July 6, 2022. SOS Limited is listed on China share market, and only ADR is traded in the US market and hence in this reverse split, it was actually changing of ratio of what ADR represents. In case of ADR being traded, holders need to surrender their ADR to a depository bank for the exchange in the ratio and also no fractional ADR is issued in connection to the ratio change. All fractional ADR are sold and proceeds are distributed to the ADR holder.
SOS Reverse Split: The Performance After the Reverse Split
The reverse split is not taken in the positive sense in the market and it indicates that something is wrong with the share and the company itself. Mostly, reverse split stocks are not well received by the investors and the share price further falls after the reverse split is effective. SOS stock met with a similar fate. The stock closed at $8.45 on 5th July 2022 (split-adjusted basis), opened slightly lower on 6TH July and closed at $8.31. After a brief run up to $9.91, yesterday (9th August 2022), it fell more than 26% in a single day to end the day at $7.30, so it has fallen about 15% from the split-adjusted price.
Actually, yesterday’s performance is not at all surprising in SOS stock. Reverse split in a way helps the short sellers to initiate even more short positions due to prices above $1. Now, since the split got effective on 6th July, it attracted weaker bulls to take some positions in the hope of getting a bullish push, but short sellers were looking for this opportunity to go even shorter and they probably would have covered their short yesterday.
Reasons for this Downfall for SOS Limited Stock
While the reasons are plenty for this free fall downward performance, it only indicates that something is fundamentally wrong with the company. The one and foremost is the worrisome financial quarter results, but there is more to it and a short seller company pointed out the wrongdoings in the business ethics of SOS Limited.
Hindenburg Research pointed out that SOS’s principal office and headquarters even does not exist way back in February 2021, it also pointed out that SOS claims to have entered in non-binding LOI with FXK, a Canadian crypto technology company, but there is no such company as FXK in a series of tweets.
Conclusion: Does Reverse Split make SOS Limited stock a buy?
It is not about the fact that SOS Limited had to go for the reverse split to avoid delisting, it is more about the reasons, why a stock had to fall more than 99% in the past couple of years.
True that crypto prices are volatile and did fall, but not to such an extent. Moreover, there is no denial in the fact that the company’s financial performance is not up to the mark to attract investors.
The main reason could also be the findings by the Hindenburg Research about the wrongdoings in business ethics. Bad financial performances can be spared by the investors, but not the wrongdoings in work ethics.
The reverse split is just a means to save the company from delisting, but it has even been beneficial for short sellers to make some quick bucks. Small retail investors must keep themselves on side-lines from such doomed companies as there are various good alternatives always available in the market.
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