TOP Ships (TOPS) Stock Tumbles After Effecting Reverse Split

TOP Ships TOPS Stock News

TOP Ships Inc. (NASDAQ: TOPS) is tumbling in the market this morning, giving up more than 20% early on. The declines are happening for good reason. The company moved forward with yet another reverse stock split, opening the door to further potential dilution. Here’s what’s happening.

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TOPS Stock Tumbles On Reverse Split

On Friday, TOP Ships announced that its Board has approved a 1-for-25 reverse stock split. This means that for every 25 shares of TOPS stock owned on Friday, investors now have one share worth 25 times the value… well, before the premarket declines are accounted for.

Ultimately, the move is cosmetic. So, why is it that the stock is falling?

Well, it has to do with why the reverse split took place. TOPS stock was trading well under the $1 per share mark, putting it in danger of being delisted from the NASDAQ. So, the reverse split increased the price over the $1 per share minimum, solidifying its listing on the exchange… for now.

There are a few problems that investors see with this move:

  • First and foremost, the fact that the company had to use the reverse stock split to remedy its non-compliance with the NASDAQ’s minimum bid price rule is a screaming indication of a struggling company.
  • Moreover, TOPS has moved forward with plenty of reverse splits in the past, following a pattern of falling stock prices and reverse splits to remedy compliance issues.
  • Finally, throughout the history of the company, reverse stock splits have been a signal of coming dilution. Essentially, it’s hard to raise funds through a dilutive offering when you’re trading at $0.10 per share. Liquidity is a concern and those offering the funding don’t see a way to get their money back. However, by increasing the price per share through a reverse split, funding through the use of dilutive offerings becomes much easier to come by.

So, when we look at TOP Ships, we have a company that has not only failed to organically comply with NASDAQ listing requirements, but that’s also likely setting up for a dilutive offering that will rob investors of value.

Don’t believe me, just look at the chart below:

Yes, the chart above is the historic TOPS stock chart, and yes, you’re reading that right. If you would have invested in the IPO, you would have spent a few bucks. However, the stock has seen so many reverse splits, that the combined shares that would now represent a single share would have been worth more than $80 billion. The stock has given up over 99.99% of its value since the launch of its IPO.

The catalyst for these losses is simple. Reverse splits followed by dilutive offerings.

The fact of the matter is that history repeats itself, and if that is the case for TOPS stock, further declines are the only likely result ahead.

Final Thoughts

Fool me once, shame on you. Fool me twice, shame on me. TOPS has done nothing more than fool investors since inception. While there are nice short squeeze opportunities in the stock here and there, it is a horrible buy and hold play. The only thing incredible about the company is the fact that it has somehow continued to garner investor interest, leading to an avoidance of bankruptcy!

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