Aurora’s reverse stock split is all about increasing perceived value…
Stock splits are nothing new.
They happen all the time, typically by smaller companies that aren’t on too many investor’s radars.
But well-known companies can have stock splits, too.
Well-known companies like Aurora Cannabis Inc. (NYSE: ACB), which is conducting a 1-for-12 reverse stock split planned for May 11.
Here’s basically what that means. Before the stock split, ACB stock is trading around $0.70. Once the split happens, it will trade for around $8.50 per share. The number of shares you will own will be different through the split, but the value of your ACB investment will remain the same.
With 16 acquisitions in a year and a half, mostly paid for in stock, and over a billion shares outstanding, Aurora’s reverse stock split was only a matter of time.
Why Stock Splits
To help you understand Aurora’s decision, let me first tell you a little bit about my background so you can see where I’m coming from.
I got into the entrepreneurship world through trading stocks when I was in my early days at college. I made so much money day trading that I decided I wanted to drop out and just start trading for a living.
Then you probably know what happened next.
I turned my $10,000 into $80,000, then subsequently into zero…
As fast as it had come, it was gone.
I immediately started taking my securities courses to learn what I could have done better. I learned everything from the basics of investing in bonds to advanced portfolio management techniques to stock splits and how they play a role in the psyche of an investor.
This was always a game typically played by sophisticated business executives or strategic market promoters trying to give perceived value to a company that wasn’t there.
Not by manipulating, but by strategically using financial instruments to their advantage to make a stock price higher and show more “perceived” value.
Aurora’s Strategic Decision
In Aurora’s case, I feel this was a solid strategic move as it will take the company’s 1.3 billion shares outstanding down to just over 109 million. A much more manageable number, easier to stomach for most investors, and much more agile to regain some momentum with a higher share price and more perceived value. All while maintaining the listing requirements of all exchanges.
Here’s what Aurora Cannabis shareholders need to know before May 11 about the planned reverse stock split. Full story.
Additionally, a share price of roughly $8.50 provides much more perceived value.
While a strong strategic move overall, what this also tells investors is that Aurora is likely planning to do more financings.
This is because management doesn’t expect the company’s share price to recover back north of $1.00 in the near term to meet listing requirements, so this is likely the only solution given near-term cash restraints and significant debts coming due in 2021.
Through all my years of trading, watching, and playing the markets, I’ve learned that most stock splits generally result in lower share prices for investors in the near-term.
With continued problems plaguing the Canadian cannabis market, there are going to be a lot of good bets and a lot of bad bets made in the coming months.
For my own portfolios, I’m focused on three things – cash in the bank, a near-term path to profitability, and strong management teams.
If you’re ready to get started in cannabis investing, I encourage you to check out my comprehensive Cannabis Investor’s Masterclass where I share the three simple steps that I used to create my self-made fortune. Watch it here.
Advisory Board Member, National Institute for Cannabis Investors
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20 responses to “The Strategy Behind Aurora Cannabis’s Reverse Stock Split”
April 29 2020