Thursday, January 1, 2009

Listing Levers

If a stock is delisted from its market, it will become less liquid and will likely trade at a discount to its previous price. Therefore, when considering a stock for purchase, you may want to ensure it is not in danger of being de-listed from its exchange. For example, here are the requirements for a stock to remain compliant with the NYSE.

However, just because a company does not meet the requirements now does not mean it will be delisted. Consider Rite Aid (RAD), a US retail drugstore chain. The stock trades at just 33 cents, which is far below the minimum $1 requirement for the NYSE as listed here. However, a grace period is granted to allow companies to regain compliancy. In the case of RAD, because it has an abundant number of shares, it can do a 10-1 reverse stock split. In this way, it will increase its share price to $3.33 and still have the minimum number of shares to remain compliant.

A rising number of companies, however, do not have the flexibility of RAD. In the first three quarters of this year, 19 companies have been delisted from the NYSE. Investors should ensure they are aware of any upcoming dangers of delisting in order to avoid unwelcome surprises with respect to any companies in which they are considering investing.

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