Shares of Mullen Automotive (NASDAQ:MULN) are finally trading above $1. This is due to the electric vehicle (EV) company recently enacting a 1-for-25 reverse stock split. Still, MULN stock is down about 15% today.
Reverse stock splits are generally viewed with a negative connotation, which could explain today’s decline. As Investopedia notes:
“Reverse stock splits do not impact a corporation’s value, although they are usually a result of its stock having shed substantial value. The negative connotation associated with such an act is often self-defeating as the stock is subject to renewed selling pressure.”
Mullen enacted the share consolidation, which took effect today, in order to satisfy the Nasdaq’s minimum price requirement of $1. Nasdaq previously gave Mullen until March 6 to have a stock price of at least $1 for 10 consecutive days. The company then received a 180-day extension until Sept. 5 after failing to reach the price target. In the reverse split announcement, Mullen warned that there is “no guarantee the Company will meet the minimum bid price requirement.”
MULN Falls Lower Following Reverse Stock Split
During Mullen’s last special meeting of stockholders, shareholders voted in favor of a reverse split in a ratio between 1-for-2 and 1-for-25. Any shareholders owning fractional shares following the split will have their shares rounded up to the nearest whole share.
The split has removed a major price requirement overhang from the company. The move should also allow Mullen to focus on its core business instead of the price of MULN stock, as long as shares can stay above $1.
Still, Mullen appears to have been too late to satisfy continued inclusion in the Russell 2000 index. This year, the index held its rank day on April 28. On rank day, the index screens members for a minimum price of $1. If shares of a company are below $1 on rank day, a stock can still be considered for inclusion if the average daily closing price over the past 30 days was above $1.
Before the reverse split, shares of MULN had been below $1 since July 2022. Preliminary results of the Russell 2000 reconstitution will be released on May 19. This will be followed by updates on May 26, June 2, June 9, June 16 and June 23. The rebalanced Russell 2000 will take effect at the end of the day on June 23.
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On the date of publication, Eddie Pan 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.