Nikola Corporation stock experienced a significant drop, plummeting nearly 21% during premarket trading on Thursday.
This decline followed the company’s announcement of an upcoming 1-for-30 reverse stock split, a move approved by its board of directors.
The reverse stock split will result in Nikola’s shares being traded on a split-adjusted basis starting from June 25.
Nikola Corporation reverse stock split details
Nikola Corporation, known for its efforts in producing hydrogen-powered and electric vehicles, has faced various challenges over the past few years.
The stock has been trading at low levels, and the reverse stock split, at a ratio of 1-for-30, is seen as a measure to prevent delisting from the NASDAQ exchange due to non-compliance with the minimum bid price requirement.
The strategic move is aimed at consolidating the number of outstanding shares to boost the stock price.
As part of the reverse stock split, every 30 shares of Nikola currently held by shareholders will be converted into one share.
This reduction in the number of shares will multiply the stock price by 30, but the overall market value of the company will remain unchanged.
Why is reverse stock split important?
Through a reverse stock split, a company can shore up its stock price by drastically reducing the number of shares outstanding, helping it to avoid being delisted from an exchange or to make the stock more appealing to institutional investors.
Nikola Corporation stock performance
Following the announcement, Nikola’s shares were down by 21%, dropping to $0.38 at 5 pm ET.
This significant drop reflects investor concerns about the company’s future prospects and the effectiveness of the reverse stock split in addressing underlying issues.
Source: TradingViews
Reason for Nikola Corporation downward trajectory
Nikola’s stock has experienced a decline, reflecting a broader trend of volatility for the company.
In May, Nikola fell short of Wall Street’s revenue expectations for the first quarter as it faced challenges in delivering an insufficient number of hydrogen fuel cell trucks. The EV firm came in shy of revenue estimates for its fiscal first quarter.
To compound matters, the company’s cash and cash equivalents decreased from $464.7 million to $345.6 million by the end of March 31, compared to the prior three months.
This downward trajectory in Nikola’s stock price is not an isolated event but rather a consequence of various ongoing struggles.
Over the past year, the company has grappled with production delays, financial losses, and legal challenges, all of which have collectively eroded investor confidence.
These persistent obstacles have significantly impacted the company’s performance and contributed to the current decline in its stock value.
Nikola Corporation future outlook
The reverse stock split is a critical step for Nikola as it seeks to stabilize its stock price and maintain its listing on the NASDAQ exchange.
While the reverse stock split serves as a short-term measure, ensuring market strength and investor confidence, Nikola’s long-term success hinges on operational adjustments and meeting delivery targets.
The company recognizes the importance of effectively addressing these areas to establish a solid foundation for growth and sustainability.
Investors will be closely watching Nikola’s upcoming earnings reports and production milestones. Positive developments in these areas could help restore confidence and support a recovery in the stock price.
Conversely, any further setbacks could exacerbate the company’s difficulties and lead to additional stock price declines.
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