Mind Medicine (NASDAQ:MNMD) stock, which had been rising on small trader interest and positive updates, fell nearly 10% as it enacted a 1-for-15 reverse stock split.
The stock was also helped by rumors of a short squeeze Aug. 18, which sent it to a post-split high of $19.95 per share. That’s $1.33 per share pre-split.
Do You Mind?
MindMed is interesting because it hopes to use LSD to treat common conditions like ADHD and anxiety. The U.S. Drug Enforcement Agency has begun allowing limited research into psychoactive substances, even while they remain classified as dangerous. MindMed has a pipeline of different formulations but nothing in the market.
There are two trading factors at play. First was a decision by Cantor Fitzgerald to launch coverage with a $3 pre-split price target, which would be $45 post-split. MindMed stock was also helped by reports that Jake Freeman, a 20 year old who made a reported $110 million trading Bed Bath & Beyond (NASDAQ:BBBY), had amassed “an activist stake” in the company.
The trouble is that “an activist stake” wouldn’t be hard to create with a market capitalization of $354 million. Freeman is also the nephew of MindMed founder and former chief medical officer Scott Freeman. His buy could have nothing to do with the stock’s short-term prospects.
Any stock with a low market cap is going to be volatile when traders become interested in it. This can lead to big price swings on low volume. While MindMed was up recently, it’s still down 42% on the year.
The Bottom Line on MNMD Stock
A reverse stock split is often conducted to keep a stock’s listing compliant. Markets don’t like stocks trading at under $1 for an extended period.
That is the case with MindMed.
The math says this also makes the stock less volatile. If MindMed goes from $1 to $2 that’s a headline. If it goes from $15 to $16 it’s not.
On the date of publication, Dana Blankenhorn held no positions in any companies mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.