Today's dip in Luminar Technologies' share price is causing a stir.
Shares of lidar technology company Luminar Technologies (LAZR, dropping -7.48%) witnessed significant decreases in value on Thursday, following the company's execution of a reverse stock split to prevent delisting from the Nasdaq Stock Market.
At 11 a.m. ET, post-split adjustments, Luminar's shares were approximately 10% lower than the previous day's closing price.
The purpose of reverse stock splits
The Nasdaq Stock Exchange demands listed companies to maintain a minimum share price of $1. If a company's share price fails to stay above $1 for 30 consecutive trading days, the exchange issues a warning, giving the company 180 days to rectify the situation.
Firms that receive such alerts and don't foresee an imminent bullish development within the 180-day timeframe often opt for a reverse stock split. In such a case, multiple shares trading under $1 each are replaced by a single new share, expected to uphold the $1 requirement.
Luminar's reverse stock split
Luminar received a warning on October 15, prompting the approval of a reverse stock split by shareholders on October 30. The reverse split, in which 15 shares were swapped for a single new share, was implemented after market hours on Wednesday.
However, the stock's current decline on Thursday may not be a positive sign, as reverse stock splits in response to delisting notices generally don't indicate a bullish forecast. If Luminar had anticipated an increase in share price within a few months, it might likely have skipped the split.
From the beginning of the year, Luminar's shares have depreciated by approximately 80%.
Investors may be concerned about Luminar Technologies' financial health, as the reverse stock split is often used as a last resort to meet the Nasdaq's minimum share price requirement. After the execution of a 15-for-1 reverse stock split, individuals holding 15 shares now possess a single share, but the decrease in Luminar's share price might indicate a need for smart investing strategies to protect their money in this sector.
