Monksdream
4 months ago
Hundreds of Stocks Have Fallen Below $1. They're Still Listed on Nasdaq. -- WSJ
8:30 am ET December 3, 2023 (Dow Jones) Print
By Alexander Osipovich
Hundreds of stocks have broken the buck this year, following a slump in the once-hot market for buzzy startups seeking rapid growth.
As of Friday, 557 stocks listed on U.S. exchanges were trading below $1 a share, up from fewer than a dozen in early 2021, according to Dow Jones Market Data. The majority of these stocks -- 464 of them -- are listed on the Nasdaq Stock Market, whose rules require companies to maintain a minimum share price of $1 or risk being delisted.
Investor-protection advocates say many of these sub-$1 stocks belong to risky small companies that should be on the over-the-counter market, the traditional home of "penny stocks" not ready for the prime time of Nasdaq or the New York Stock Exchange.
But instead of being delisted, the companies are maneuvering to maintain their Nasdaq spots -- alongside blue chips such as Apple and Microsoft -- as long as they can.
"Any company that looks to list and remain listed on Nasdaq must satisfy certain requirements," a Nasdaq spokesperson said. "Our rules, like any other exchange, are approved by the Securities and Exchange Commission and provide specified periods for companies to regain compliance with the applicable requirements."
Companies with a share price below $1 can stay listed more than a year before Nasdaq kicks them off. Largely owing to the pileup of stocks below $1, around one in six Nasdaq-listed companies is running afoul of the exchange's rules, Nasdaq data show.
"Exchanges are supposed to be gatekeepers and list only bona fide companies that have investor interest," said Rick Fleming, a former SEC investor advocate. "If a bunch of companies aren't really meeting those standards, it undermines the seal of approval that the exchanges are supposed to be imparting."
Many of today's sub-$1 stocks went public in 2020 and 2021 during a boom in initial public offerings and deals with special-purpose acquisition companies. Mergers with SPACs were a popular way for startups to go public until a regulatory crackdown in 2021 slowed the SPAC craze.
Nasdaq's website lists 583 companies that are "noncompliant" with its own listing rules. Besides falling below $1 a share, common reasons for companies to become noncompliant include failing to meet minimum targets for float, stockholders' equity or number of shareholders.
AEye, a maker of sensor technology for self-driving cars, is on the list because its shares have been stuck below $1 for nearly a year. They closed at 15 cents on Friday, down more than 98% since AEye made its debut on Nasdaq through a SPAC merger in August 2021.
The company plans a reverse stock split before the end of this year to regain compliance, an AEye spokeswoman said.
Reverse stock splits have surged as struggling companies seek to boost their share price above $1. There have been 255 reverse splits so far in 2023, up from 159 last year, according to data provider Wall Street Horizon.
Some investors view reverse splits as a black mark on a company's reputation, so companies often avoid doing them until there is no other choice.
Under Nasdaq rules, a company whose shares fall below $1 for 30 days gets a warning stating that it is noncompliant and has 180 days to get its share price back above the threshold. At the end of that period, many companies get an additional 180-day grace period if they say they are considering a reverse split or some other way to get back above $1.
At the end of the second 180-day period, companies can still avoid getting kicked off Nasdaq by requesting a hearing to appeal the delisting decision. Until the hearing, they won't be delisted. Companies must pay Nasdaq a $20,000 fee for the hearing.
Some of the sub-$1 stocks have enjoyed bursts of heavy trading volume as individual investors pile into them, driven by social-media chatter.
Inpixon, a maker of location software for factories and warehouses, unleashed a brief trading frenzy this summer after announcing a merger, even though it is a relatively obscure company whose shares have traded below $1 since January.
On July 25, about 267 million shares of Inpixon changed hands -- representing 2.7% of the shares traded in the entire U.S. stock market that day and more than 300 times the previous day's volume, according to Bloomberg Intelligence. On Friday, Inpixon closed at 7 cents a share.
Nasdaq has required listed companies to maintain a $1 share price since the 1990s, though it suspended the rule during market crashes in 2001, 2008 and 2020. The NYSE has a similar minimum-price rule on its flagship exchange. But the Big Board has far fewer companies trading below $1, because Nasdaq attracts the majority of companies with small market caps, which are more likely to fall below the threshold.
The recent surge in exchange-listed stocks trading for pennies raises concerns about market integrity, said S. Ghon Rhee, a finance professor at the University of Hawaii and co-author of a 2011 academic study on Nasdaq's $1 rule.
"When it comes to risks associated with stocks falling below $1, our findings suggest that noncompliant stocks were much more vulnerable to catastrophic losses," Rhee said. "Investors could have their entire investment wiped out."
Write to Alexander Osipovich at alexo@wsj.com
Captain Price
9 months ago
$LIDR hit $.85 this week & retraced back down to $.38 - $.50 level. Looking ready to curl back up but this time over $1 & beyond. AI is the hottest sector and AEye has the best tech in the game. 35% institutionally owned by big names like BlackRock. The next $UPST in the making.
**TLDR:** AEye at a $77mm market cap is an enticing risk/reward and alpha opportunity. The company is trading at less than half net assets, extended its runway to the end of 2024, and has a floor based on the value of its LiDAR IP that I believe is above the current stock price.
**Company Background:**
AEye, Inc. is a technology company that develops artificial intelligence (AI)-powered lidar systems for vehicle autonomy, advanced driver assistance systems, and robotic vision applications.
Luis Dussan, a leading aerospace designer of targeting systems for fighter jets, understood self-driving cars would face similar challenges: the need to see, classify, and respond to an object in real time. Luis founded AEye in 2013 where engineers from NASA, Lockheed, the USAF, and DARPA created AEyeβs patented 4Sight™ lidar platform, key to the rollout of sensing applications for automotive, trucking, smart infrastructure, logistics, and rail.
AEye has partnered with leading automotive manufacturers and Tier 1 suppliers to develop and deploy its lidar systems. The company's lidar systems are currently being used in a variety of prototype and production vehicles, including the Continental Automated Truck (CAT) and the Toyota Sienna minivan.
?
In 2021, AEye went public through a merger with a special purpose acquisition company (SPAC).
?
**Current Situation:**
Down from an ATH around $14/share $LIDR is now down to $0.45, equating to a market cap of $77mm.
?
The company is trying to turn over a new leaf after an obviously rocky debut to the public equity market, with a new CEO and CFO appointed in the last 6 months. In order to extend their runway in a challenging funding environment, AEye made a decision that is becoming more and more common in 2023, cutting 1/3 of their staff and trimming expenses such as professional services (e.g. consultants) and real estate.
?
The new management team and slimmed-down workforce are now focused on one thing: validating and delivering their HRL LiDAR product jointly developed with Continental ($CTTAY). This is a great segue to why I believe AEye is such an enticing arbitrage opportunity.
?
Companies who have lost the faith of equity markets typically trade around the equivalent of their net cash/asset balance, signifying that investors think that management is too incompetent to get above a 1:1 return on the investment of said cash/assets. At the current $30m market cap, AEye trades at 40.25% of net assets. I'll state below why I think that this valuation is far too harsh, based on an underappreciated roadmap and price floor.
?
**The Play:**
The [HRL131 Long Range LiDAR](https://www.continental-automotive.com/Passenger-Cars/Autonomous-Mobility/Enablers/Lidars/HRL131), jointly developed with Continental, is the reason I believe that $LIDR is a significantly underappreciated stock.
?
Continental, an international company that trades at a $15B market cap, is more than just a strategic partner and [investor](https://www.continental.com/en/press/press-releases/continental-expands-lidar-technology-portfolio/) to AEye. They are also the first company that I've seen _get on a partner company's_ quarterly earnings call to reaffirm their confidence in the product and vision.
?
Norm Hammerschmidt, Vice President of the Components business at Continental went on AEye's Q1 earnings call this May to say the following:
?
"I would like to start by saying that Continental is very pleased with the new management and the go-forward plan presented by AEye. AEye's decision to take an automotive first strategy further strengthens our partnership and provides the focus and velocity needed to secure automotive series production awards and expand our LiDAR business case. As a 150-year old automotive Tier 1 supplier, we at Continental deeply understand the processes, time and capital required to industrialize products for passenger and commercial vehicles, so when we choose partners like AEye, we do so with our brand and reputation with OEMs in mind. We are as committed to AEye today as we were 3 years ago when we began this journey. And even more so as we work together to accelerate through the design validation stage, which is a precursor to OEM integration and higher volume production.
?
The Conti and the AEye engineering teams are working collaboratively during this stage to perform stringent accelerated life cycle testing on the HRL131 Long Range LiDAR products in our labs while also replicating real-world scenarios in a variety of adverse weather conditions at our closed course tracks in Michigan and Germany. In parallel, our business teams have progressed tremendously on quoting activities with multiple large volume LiDAR programs from both passenger and commercial vehicle OEMs, where we believe we are well positioned to win. As the global leader in ADAS products, Continental began this journey with AEye with a belief that the automotive LiDAR adoption curve will mimic that of radars, which saw exponential growth over the last 25 years, and these recent RFQs from OEMs confirm our belief. The future looks very bright for our LiDAR market and our partnership with AEye."
?
In short, Continental believes strongly enough in AEye's product to center their own autonomous driving and trucking roadmap around their jointly developed HRL131 long range LiDAR. This HRL131 product, according to Continental's website, "enables new compelling automated driving features and will be ready for mass production starting in 2024."
?
AEye and Continental are currently in the OEM validation process with the LiDAR, likely including companies such as Aurora Innovation ($AUR). [This tweet from Continental Press shows an Aurora truck featuring the HR131 powered by AEye](In April 2023 @ContiAutomotive talked about the impressive @aurora_inno powered #AutonomousTruck.
When you zoom in the pic from the @Conti_Press tweet, you see the integration of #HRL131 Ultralong Range #LIDAR which is powered by @AEyeInc
Time to ask $LIDR management, why areβ¦ pic.twitter.com/nDLoy9h1M6— Abhishek Mogre (@AbhishekMogre_) May 19, 2023
), which has not been publicly reported or acknowledged by AEye. At this low of a market cap, any positive press could send the stock upwards in a hurry.
?
**Conclusion:**
The new and improved AEye has a streamlined product roadmap, supported by an established partner in Continental, that not only gives the beat-down company an opportunity to succeed and thrive, but gives the company a buyout/investment floor at or above the current stock price.