It’s been less than a week since Mullen Automotive (NASDAQ:MULN) initiated a 1-for-25 reverse split. Shares of MULN stock have now traded above $1 for two days, not including today. They must remain there for a minimum of 10 consecutive days to satisfy the Nasdaq continued listing minimum price requirement.
Following the reverse split, some financial websites showed that MULN stock carried a short interest of 242.29%. This is absolutely not correct, as these websites input data that has not yet accounted for the reverse split.
Prior to the reverse split, MULN had a reported short interest of 9.69%. That is still relatively high. If you multiply 9.69% by 25, you get 242.25%. That is almost the exact short interest figure on some financial websites. The 9.69% figure is likely rounded to the second decimal digit. Therefore, multiplying the actual short interest figure by 25 should turn out to be exactly 242.25%.
The 1-for-25 reverse split provided shareholders with one share for every 25 shares held, reducing the number of shares available by 25x. However, many financial sites operate with a lag, inputting the same number of shares shorted before the reverse split instead of dividing it by 25. This has caused the short interest figure to be 25x what it actually is.
No, MULN Stock Does Not Have Short Interest Above 200%
Imagine a hypothetical situation where there are 100 shares outstanding and 9.69 of them are being shorted, equating to a 9.69% short interest. After a 1-for-25 reverse split, there should be 0.3876 shares shorted out of four shares outstanding. However, some sites have calculated short interest using the prior 9.69 shares shorted figure instead of the post-reverse split short shares figure of 0.3876 shares.
Another telling sign that short interest is not 242% is that the cost to borrow (CTB) fee for MULN has barely changed since the reverse split. The CTB fee is currently 7.68% and has only inched higher from the CTB fee of 6.96% on May 3, the day before the reverse split. If MULN actually had a short interest of 242%, the CTB fee would likely be much higher.
Still, Mullen announced last month that it would investigate potential market manipulation and illegal short selling of its stock based on high levels of failure to deliver (FTD) on short sales. The electric vehicle (EV) company has teamed up with Shareholder Intelligence Services to collect data from broker-dealers, clearing firms and other relevant sources that could assist in the investigation. Further updates on the investigation have not yet been provided.
On Penny Stocks and Low-Volume Stocks: With only the rarest exceptions, InvestorPlace does not publish commentary about companies that have a market cap of less than $100 million or trade less than 100,000 shares each day. That’s because these “penny stocks” are frequently the playground for scam artists and market manipulators. If we ever do publish commentary on a low-volume stock that may be affected by our commentary, we demand that InvestorPlace.com’s writers disclose this fact and warn readers of the risks.
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.