What happened
Ebet (NASDAQ: EBET) stock is seeing big sell-offs in Monday's trading. The online-gambling specialist's share price was down 27.4% as of 10:30 a.m. ET, according to data from S&P Global Market Intelligence.
Ebet published a press release after the market closed on Friday, announcing that it was moving ahead with a reverse stock split. The move, which had not been previously announced, caught investors by surprise and is spurring a surge in bearish sentiment.
So what
Ebet announced on Sept. 29 that it would complete a 30-for-1 stock split after the market closed on that trading day. As a result, shareholders would receive one share of Ebet stock for every 30 shares of stock that they owned at the time of the split's closure.
The move reduced the company's outstanding share count from 448.2 million shares to roughly 19.2 million shares. While there was always a good chance that the company would conduct a reverse stock split, the execution of the reverse split came out of the blue.
Now what
While the move doesn't suggest any material impact for Ebet's business operations, reverse stock splits are often a bad sign. They're often used by struggling companies with badly beaten-down stocks in order to continue trading on major exchanges.
In order to remain listed on the Nasdaq stock exchange, a company must be trading above $1 per share. While there is a 30-day grace period that allows the stock to recover above that level and continue trading, it will be delisted from the exchange unless the price per share improves or an extension is granted. Unfortunately for Ebet, its stock opened today's trading below the $1 mark and continued to lose ground from there.
If Ebet is removed from the Nasdaq exchange, the stock will be less accessible to traders. The stock would have to be purchased through an over-the-counter exchange, and it could also be removed from exchange-traded funds (ETFs). With today's share price collapse, another reverse stock split may be needed to keep the stock on the Nasdaq.
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Keith Noonan has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
