The major equity indices struggled for traction today while commercial electric vehicle (EV) manufacturer Arrival (NASDAQ:ARVL) stock lost all pretense of positive momentum. Share closed down by 14% for the day. This comes after management announced a reverse stock split to meet listing requirements for the Nasdaq. Apparently, investors see through the cynical action.
According to the accompanying press release, Arrival will implement a reverse split at a ratio of 1-for-50. The Nasdaq requires that its listed securities meet a minimum trading price of $1. At an extraordinary general meeting of shareholders on April 6, shareholders voted to approve the reverse split. Following the meeting, ARVL stock skyrocketed 40%.
However, that enthusiasm seems to have all but faded out. Over the past five sessions, ARVL stock is down nearly 11%. Since the start of the year, shares are also down more than 30%, reflecting growing desperation for the EV maker.
Notably, the reverse stock split will be effective a minute past midnight on April 14. While the ARVL stock ticker will remain the same, the security will trade under a new CUSIP number: L0423Q124.
ARVL Stock Suffers From Credibility Woes
Although a reverse split should keep ARVL stock afloat, the underlying enterprise may only be buying itself a little time. At the moment, shares trade for only 12 cents a pop. Therefore, investors likely see the reverse split as a desperate move.
Indeed, the Financial Industry Regulatory Authority (FINRA) offers a pointed warning about reverse splits in general:
“If a reverse split is announced and actually occurs, proceed with caution. Reverse splits tend to go hand in hand with low-priced, high-risk stocks.”
Another factor that has been off-putting to investors is Arrival’s second merger with a special purpose acquisition company (SPAC). Initially, Arrival merged with CIIG Merger to become a publicly traded enterprise. Now, it plans to merge with Kensington Capital Acquisition V (NYSE:KCGI). The company could raise up to $283 million in cash from the merger “if it can convince investors to not redeem.”
However, that’s going to be a tall order. As Reuters pointed out in January 2022, high redemption rates among SPAC-based offers have forced underlying enterprises to seek alternative financing. Compounding matters, SPACs also generally don’t perform well following their business combinations.
Why It Matters
According to TipRanks, among the investors the platform surveys, only 0.3% of portfolios hold ARVL stock. Within this cohort, Arrival shareholders on average have lost 0.4% in their positions in the last seven days. Further, in the past 30 days, they have lost 2.7%. Overall, sentiment among stakeholders pings as “very negative.”
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On the date of publication, Josh Enomoto did not hold (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.