Some investors may have noticed that Phunware (NASDAQ:PHUN), a cloud platform provider for mobile applications, is trading at a significantly higher price compared to yesterday. For those who might not have been aware, Phunware completed a reverse stock split, which is when companies reduce the number of shares outstanding into fewer, proportionally more valuable shares.
Unlike buybacks, which increase investors’ ownership in a company, reverse stock splits don’t generate any additional value. Instead, they are done to artificially boost the share price to meet listing requirements.
In Phunware’s case, the company performed a one-for-50 reverse stock split, meaning that every 50 shares will be consolidated into just one share. Therefore, the share price is 50 times higher today than it would have been in yesterday’s trading, but the market cap has not been boosted.
Is PHUN Stock a Good Buy?
Phunware is an unprofitable company with revenue that has fluctuated wildly over the past several years. This has been reflected in its declining share price, which is the reason why such a large reverse stock split was needed in the first place. Indeed, a look at the past five trading days (stock-split adjusted) shows that shares have declined by more than 40% during this timeframe.
