Wednesday was kind of a good news, bad news day for Mullen Automotive (NASDAQ:MULN) investors.
The good news: Responding positively to a petition from Mullen, the Nasdaq stock exchange has granted the company a 180-day grace extension on its order to “cure” its lagging stock price, and find a way to get Mullen’s share price up above $1 — or else be delisted from the exchange.
On September 7, 2022, you see, Nasdaq notified Mullen that for the previous 30 consecutive days, its share price had closed below the $1 per share price that is the floor level for remaining listed on the Nasdaq. On September 7 itself, Mullen shares cost only $0.67 per share. And in fact, the last time Mullen shares had traded over $1 was July 25, 2022.
It hasn’t broken back over a buck ever since.
Regardless, pursuant to Nasdaq Listing Rule 5810(c)(3)(A), Mullen automatically received a 180-day grace period in which to cure its stock price — either by performing so well as a business that the price rose organically, or by undertaking a bit of financial engineering, running a reverse stock split, and shrinking its share count so that each remaining share would be worth more than $1. The deadline for making this happen, however, was March 6, 2023, and on that date instead of growing to $1+, Mullen’s share price had shrunk by 66%.
Not to worry, though, right? On Wednesday, Mullen confirmed that it has received another grace period, and this one will give the company until Sept. 5, 2023 to spiff up its stock price. Surely, Mullen can right the ship if given another six months to work with — even if it utterly failed to do so the last time it was given six months.
Despite what the Nasdaq says, however, Mullen does not have six more months to work with. In fact, it only has 10 days.
You see, in announcing the good news of the Nasdaq’s forbearance, Mullen advised its shareholders that rather than build new electric vans and trucks, market them to customers effectively, rake in sales, and earn profits on those sales — thereby making its business so valuable that investors will happily bid its share price up over $1 — Mullen has a different plan of action in mind:
“If Mullen stock fails to trade above $1 for a minimum of 10 consecutive business days prior to Sept. 5, 2023, the Company will implement a reverse stock split to cure the Deficiency prior to the expiration of the additional 180-day compliance period.”
Translation: Mullen sees no possibility of getting to $1 on its own. Instead, it’s going to proceed with the reverse stock split that it warned about when reporting its financial results back in February.
What’s this mean for shareholders? On or about March 22, 2023, you should expect Mullen to announce a reverse share split. The roughly 1.75 billion Mullen shares currently outstanding will be put in a trash compactor and squeezed to a point where there are no more than 350 million shares remaining (a 1-for-5 spilt that will give the stock a share price of about $1), and probably closer to 175 million shares (a 1-for-10 split that will give the stock a share price of about $2). In fact, there’s a real possibility we could see Mullen announce a 1-for-20 share split that would give the stock a share price of $4.
On the one hand, this would give Mullen a bit of breathing room before it has to start worrying about delisting again. On the other hand, Mullen shareholders will end up with only 1/20 the number of Mullen shares they thought they owned — and business prospects exactly as bad as they already are.
Furthermore, MULN has a Smart Score of 1 on TipRanks, meaning that it is likely to underperform the market. (See MULN stock analysis)
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