One of the leading decliners in today’s market, Ayro (NASDAQ:AYRO) stock is now trading at levels below where it started the year. Indeed, what looked like a promising year for investors in Ayro has turned sour, with AYRO stock losing more than half its value since its July peak this year.
This decline appears to be due in part to two key factors. First, the company announced a 1-for-8 reverse stock split on Friday in a bid to maintain its Nasdaq listing. This reverse split appears to be the key driver of today’s move, with investors taking the news as a clear negative signal.
Secondly, Ayro also announced last week that the company has entered “low-rate initial production” of its Vanish vehicle. This limited manufacturing run appears to have underwhelmed investors.
Let’s dive into what investors should make of this drop in AYRO stock today.
AYRO Stock Sinks on Reverse Stock Split
In general, reverse stock splits are a negative catalyst for most companies. These reverse splits are taken on in order for companies to maintain their listings. Without a public listing, small-cap and early-stage companies lose access to the public markets for financing. For many companies, that can be a death knell. Additionally, other concerns — such as a lack of liquidity for insiders and the inability to offer stock-based compensation — drive most reverse split decisions for companies like Ayro.
Today’s move indicates that the market isn’t necessarily jazzed about the position Ayro finds itself in. A niche producer of unique utility low-speed electric vehicles (EVs), the firm saw significant interest during the pandemic-driven EV boom. However, last year’s dramatic decline and this year’s continuation of that move haven’t spurred many investors to dive into this seemingly cheap stock.
That’s partly because the cost of capital (via debt and equity markets) has risen substantially, along with the Federal Reserve’s overnight rate. For now, Ayro has maintained its listing. But if it can’t provide a road map to profitability soon, AYRO stock could meet the fate of many other small-cap EV players in short order. At least, that’s what the market appears to be saying today.
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On the date of publication, Chris MacDonald 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.
