What happened
All stocks have bad days at least once in a while, but Monday for Tonix Pharmaceuticals (TNXP 2.04%) was one of the ugliest trading sessions in its history. The company's stock lost nearly one-third of its value after the company announced a financial engineering move that sent investors scrambling for the exits.
So what
Tonix announced Monday afternoon that it is effecting a 1-for-32 reverse split of its common stock. That shock-to-the-system move is occurring in the very near future; the company said it would be effective at the start of trading this Wednesday, May 17.
Image source: Getty Images.
The board of directors previously approved the move. The company pointed out that this was done according to Nevada law, which does not require shareholder approval.
Tonix is enacting the stock split to lift its share price above the $1.00 minimum bid price requirement required to remain listed on the Nasdaq exchange. Minimum price requirements are usually the key, and often the only, reason for companies to reverse-split their stock.
It's important to note that a stock split does not change any of the fundamentals of a company. It merely apportions the company's existing market capitalization to a different number of shares, in this case, fewer than previously outstanding. Tonix said its count of authorized common shares would shrink to 50 million from the previous 1.6 billion.
Now what
As a stock split changes nothing except a company's share count, no investor should adjust his or her view of Tonix as a business because of this move. That said, a reverse split is typically the sign of a company that is flailing and desperate, so even those with a high tolerance for risk should seriously consider whether they want to put their money into Tonix right now.
