Woah! It looks like Pulmatrix (NASDAQ:PULM) stock is up a gravity-defying 1,800% today as the tiny pharmaceutical company executes a 1-for-20 reverse stock split.
So what do you need to know?
On Friday, Feb. 25, Pulmatrix stock closed at just 32 cents a share. Today, the stock is changing hands at $6.17. The vault higher is really the Lexington, Massachusetts-based company undertaking a reverse stock split.
What Happened With PULM Stock
Pulmatrix stock has been in steady decline since 2014, having dropped nearly 100% in that time. The pharmaceutical company specializes in the treatment of obstructive pulmonary disease that attacks the lungs, as well as treatments for asthma and migraine headaches. However, to date, the company has not successfully commercialized a product.
Reverse stock splits are a tactic that companies use to raise their share price. The move sees companies reduce their number of outstanding shares in the marketplace. Existing shares are consolidated into fewer, proportionally more valuable, shares, resulting in an often temporary boost to the company’s stock price.
Companies often undertake reverse stock splits to get their share price above a certain level needed to remain on an exchange, or to appease shareholders who want to see the stock price increased. Reverse stock splits are generally viewed negatively as an artificial means of boosting a share price.
Why It Matters
Investors may have seen the sharp rise in PULM stock today and assumed the shares of the pharmaceutical company were skyrocketing higher (perhaps from a short squeeze). How else to explain a seemingly random 1,800% increase in a stock?
After the reverse stock split went into effect, Pulmatrix also did announce that it was expanding its leadership team. Starting today, Dr. Margaret Wasilewski will serve as its chief medical officer. A news release says that this move will help it make progress with its clinical pipeline.
What’s Next for Pulmatrix
Investors who were initially intrigued by seeing a jump in the PULM stock price will soon learn that it came as the result of a reverse stock split. Perhaps the executive changes will drive renewed interest, but investors should proceed with caution.
On the date of publication, Joel Baglole did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.