NASDAQ’s Stricter Delisting Rules Could Threaten 3D Printing Companies

Possible bad news for publicly traded 3D print companies is coming from NASDAQ.

The proposed rules affect companies with stock prices that fall below the US$1 threshold. Companies in that state are referred to as “penny stocks”, and in recent times have taken on a bad reputation due to repeated “pump and dump” schemes by questionable actors.

NASDAQ doesn’t want that type of company on their exchange as it devalues all stocks because of the negative reputation of penny stocks. Because of this the exchange has rules that will “delist” a company if its stock price falls below US$1 for period of 360 days.

The current rules allow companies to request an extension for another 360 days, and as a result there has been a pile up of penny stocks on NASDAQ.

What does this have to do with 3D printing? It turn out there are several publicly traded 3D print companies, some of which are on NASDAQ. NASDAQ is laden with many tech stocks, and 3D printing is considered a tech area.

Here’s the problem: investment disinterest in 3D print companies has driven down the valuation of many 3D print companies. We track these companies in our weekly leaderboard, which peaked at US$20B a couple of years ago. Now the leaderboard total valuation is only US$4B, with countless billions in value being lost.

That valuation loss is reflected in company stock prices: the valuation is divided by the number of outstanding stocks. For example, a company valued at US$10M that has 1M stocks would have a stock price of US$10.

As the valuation drops, so does the stock price. If the fall continues, the stock price eventually dips below US$1, the NASDAQ threshold. (Other exchanges have similar rules).

At that point the company is put on notice to bring up their stock price or be delisted.

Delisting is a near death blow for many companies. It means the stock is traded in the “over the counter market”, where deals are far less frequent and harder to do. The lower demand for the stock means the valuation falls even more, and it becomes extremely challenging to raise any money from investors.

Some of the 3D print companies have had stupendous losses, some exceeding 90% of their original value. Several have gone out of business, or have been scooped up by competitors at rock-bottom prices. Some remain, but have low stock prices and are on notice from the exchange.

Aside from suddenly making a ton of money to raise their valuation, there is one step these companies can take: a reverse stock split.

In a reverse stock split, the number of shares is reduced, which means the per stock price rises. In the above example, if we reduced the number of stocks by a factor of 5, we’d have 200,000 stocks instead of 1,000,000. With a US$10M valuation, the stock price would be US$50, not US$10.

This step has been taken by several 3D print companies already, and there’s likely more to come.

However, the new rules proposed by NASDAQ know about this tactic and apparently will limit the extension if more than one reverse stock split has taken place.

That could put several 3D print companies in a bad spot, as their ability to get out of the situation is more constrained than before.

This could lead to the eventual delisting of affected 3D print companies, which in some cases could push them over the edge into bankruptcy. It could also lead to increased interest in merging with other operations to combine company valuations.

The next year should be quite interesting.

Via Reuters