What happened
Shares of shipowner Top Ships Inc. (TOPS 0.89%) jumped as much as 30.9% Monday after a reverse split impacted trading. At 1:45 p.m. EDT, shares were still up 13.7% on the day.
So what
Last week, the company announced it didn't plan any more capital raises over the next 12 months and that CEO Evangelos Pistiolis wouldn't convert any of his 1.25 million warrants as part of a standstill agreement (which provides that he will not sell shares for the same 12-month duration). The company also said a 1-for-10 stock split would take place before trading today, which is why shares jumped versus their closing price on Friday.
Image source: Getty Images.
Why is a stock up after a reverse split? When shares go from being worth about 20 cents to over $2, it brings in a whole group of potential investors who aren't interested in penny stocks. So, the gain today is likely more a function of the trading dynamics of the stock exiting penny-stock territory than a sign of strength in the business.
Now what
No matter what the reaction is today, Top Ships stock isn't a good buy for investors. The company has a long history of reverse stock splits and destroying value for shareholders, and there's no indication the trend will end anytime soon. This is a stock I would stay far, far away from, especially after an up day like today.
