(update: See note in bold on DRYS at end of post)

Hey dear friends. I decided to do a follow-up post today (to the one from two weeks ago) on Helios and Matheson Analytics Inc (stock symbol HMNY). It is one of those stock stories that will go down in the history books in my view. Episodes like this in the stock market are worth studying for the lessons they can teach. I’ll simply share more of the story now without addressing the myriad of lessons, but they are there by the bucket-load in my view.

Just two weeks ago (July 20, 2018), HMNY closed at $.104/share after trading at $38.86/share on October 11, 2017. Go here to read about HMNY’s management action to effectuate a 1 for 250 reverse split (250 shares becomes 1 share at 250 times the pre-split price) on Tuesday, July 24, 2018, several days after my last post. The price per share had dropped from that $.104 at the time of my last writing to $.085 by Tuesday’s close. The reverse split adjusted the price to $21.25/share (250 x .085 = $21.25). Following the adjustment, from Wednesday, July 25 to today’s (Friday, August 3) the price has fallen from that $21.25 adjusted price to $.07/share.

A big picture of what has happened when giving effect to the 1 for 250 reverse split is that HMNY stock has dropped from a high achieved on October 11, 2017 of $9,715/share (250 x $38.86 = $9,715) to just $.07 per share today. And again, the stock has dropped from $21.25/share to $.07/share over the past 8 trading days.

Why on earth would a company do such a large reverse split? HMNY didn’t need to adjust the price up to double digits (much less $21.25) to stay listed on the Nasdaq. Why has the stock price plummeted 99.7% from the post-split price of $21.25 in just 8 trading days?

When companies are in dire financial straits like HMNY, occasionally you’ll witness a desperate attempt to raise equity money. This is a likely factor in the precipitous price drop of the past 8 trading days. The magnitude of the reverse split was probably more about the enabling of raising capital than just satisfying Nasdaq listing requirements.

Remember that HMNY closed at $.085 on July 24, 2018. It closed today, August 3rd at $.07. But that 1 for 250 reverse split means to compare the .07 price today to the .085 price of just 8 trading days ago, you must divide .07 by 250 (so, .07/250 = $.00028/share).

Go here to see HMNY’s trading each day following the reverse split of July 25, 2018. You’ll note it traded just over 2M shares on July 25 between $10.50 to $14.98/share. You’ll also note that in the days following as the share price collapsed, the number of shares traded increased exponentially. Today (Friday, August 3) it traded between .06 and .14 on over 154M shares. How much money has HMNY been able to raise over the past 8 trading days? Whatever the amount, it has come at a huge cost so far to shareholders who were buying in hopes of a rebound but experienced gut-wrenching losses. Clearly, HMNY is trying to stay alive for another day, regardless. Will the company do another reverse split and repeat the process?

One of the most extreme stories of reverse splits surrounding a company that had been in dire need of operating funds is that of DryShips Inc. (DRYS is stock symbol). It closed today at $5.09/share. Don’t faint when you read this next statement — adjusting for all the reverse splits, the adjusted all time high price for DRYS stock was achieved back in October 2007 at over $1.5 billion/share. Click on this to view historical prices as adjusted and scroll back to 2007. Go here to find interesting links about the DRYS trek with reverse splits.

I will mention one thing to keep in mind (lesson). Reverse splits aren’t always negative but when a company is clearly struggling financially to stay afloat, reverse splits are often simply indicative of that struggle.

See you next time.

Go HERE to read the math details on DRYS history of 8 reverse splits. Note that an investor who held 1000 shares before March 11, 2016 would now own .000085034 shares. Wow!!