If the stock market were the Academy Awards, the story of NewLead Holdings Ltd. (NEWL) would make a good candidate of Best Screenplay. The Athens, Greece-based shipping company’s story has seen several twists and turns as of late. After market close on July 14, the company announced a 1-50 reverse stock split, after being issued a determination letter by NASDAQ that they would be delisted if they no longer met the minimum price requirement of $1. Approved by its Board of Directors with a written consent of majority of shareholders, the split was effective from the market open the day after. It caused the stock to become the most active stock on NASDAQ for the session, with trading volume surging up to 9.3 million, about 12 times of average daily volume of 0.77 million. It continued to soar with 42.6 million shares trading hands, or about 55 times average daily volume.
It's not the first time the company announced a reverse stock split. Looking into its extremely volatile stock performance, the company looks like nothing but drama.
Reverse Splits and Dilutions
On October 17, 2013, the company announced a 1-15 reverse stock split of common shares to regain compliance with the continued listing standards of NASDAQ.
And NewLead Holdings underwent another 1-10 reverse split of common shares on March 6 this year, again for the same reason. The stock price skyrocketed from $30 to $207 on the next trading day. However, It astonishingly declined to around $2 in just 2 months with the issuance of preferred shares.
The stock price continued to sink until NewLead approved the 1-50 reverse stock split on May 15, again, to prevent its price going below $1.00. The split, again, drove the price up, this time to $220 on the following trading day, and again NewLead plummeted to just $0.06 per share as a result of the news that NewLead sued Ironridge Global IV, Ltd. for illegally issuing its shares.
With the most recent new split and NASDAQ’s halting renewed uncertainly about the future of the stock. The exchange said the suspension was made for “additional information requested” but would be lifted if the company met its requirement.
With frequent reverse splits and issuance of new shares, some have accused the company’s management of messing around investors and orchestrating a scheme. The speculation is a popular opinion in many stock forums.
Fraud or Par the Course for a Growing Shipping Company?
According to NASDAQ, the company is believed to have mislead investors and has raised public interest concerns by false and misleading public disclosures. NASDAQ did not elaborate further what was going on with NewLead Holdings, but one thing is for sure, long term investors of the stock has experienced severe loss.
Yet some still celebrated making a profit after the NEWL price rose after the recent reverse split. Whereas, historically speaking, every time after a reverse split the stock went up (as expected), but then would somehow drop to new lows. The company also frequently issues new shares during these sessions, which consequently leads to huge dilution of investors’ shares.
If you bought 375,000 shares of NewLead stock last year at the price of $30 before the October’s 1-50 reverse split, March’s 1-10 reverse split, May’s 1-50 reverse split, and now July’s 1-50 reverse split, your equivalent shares would now only be worth $4.41.
One may wonder if the company is at the brink of bankruptcy, but indeed the Greek shipping company is not short of money. The company owns three dry bulk vessels, manages three third party tanker vessels, two small bitumen tanker vessels and one Handysize vessel. NewLead also has signed a term sheet for 75% financing to buy two new Panamax vessels, and expect to manage them upon completion.
The Greek shipping industry does have a pattern of volatile stock performance over the years, because companies expect to make money from enormous vessels, which needs years’ of time to complete construction and years’ of time to turnaround profits. While one may argue investors should bear the risks before they decide which one to buy, but an extreme volatile one like NewLead, is rare. So probably it’s no shame for investors to blame, and speculate on this one.
NewLead Holdings has scheduled a hearing before the NASDAQ Listing Qualification Panel on July 23, and the decision is expected within 30 days of the hearing.
DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer