On Monday, Guardion Health Sciences (GHSI 6.38%) put into effect a reverse stock split. Shares of the ocular health foods and devices specialist promptly sank on the news, ending the day nearly 12% lower.
Since mid-2019, shortly after Guardion's debut on the stock exchange, its shares have consistently traded below the Nasdaq's effective $1 per share minimum. The exchange gave the company several chances to rectify this, most recently setting a March 15 deadline. The 1-for-6 reverse stock split was the company's fix of choice.
It's important to remember that with either standard or reverse stock splits, the total value of an investor's holdings does not change; only the share count is modified.
In Guardion's case, it's mission accomplished: Even with the price decline in the wake of the split, the shares now trade well over the $1 threshold at $2.67 apiece.
Reverse stock splits are indicative of companies that are struggling. Since launching its IPO in April 2019, Guardion has consistently landed deeply in the red due in large part to persistently high operating expenses. In its most recently reported quarter, for example, its net loss topped $2.1 billion, on only $253,188 in revenue.
Guardion is unique in the healthcare space and has reported some good news. A recent clinical trial indicated that its Lumega-Z produced "superior" results in improving vision, but the company is still deep underwater financially. Investors should approach with extreme caution, if at all.