For a company to be traded on any of the major stock exchanges, they need to apply for listing. If a company is accepted, then its shares will be listed for sale on the stock exchange. The process does not end just because the public has access to their shares. The company also has to stay compliant with all exchange rules and SEC regulations. If not, the stock could end up being delisted. What are some of the warning signs that a stock might get delisted?
1. The Share Price Plummets
One of the biggest warning signs that a company might get delisted in the future is when the share price plummets. In general, a share price less than $1 per share could cause a company to get delisted. Sometimes, companies drop to this level shortly before they bounce back up. On the other hand, if a share price drops to this level and stays there, the major stock exchanges could decide to delist that company, by providing notice that if it isn’t increased by a certain amount of time it will be delisted.
2. The Company Wants To Go Private
Sometimes, a company is delisted voluntarily. Some companies believe it is better for them to go private. In this case, they will need to buy the shares from all of the shareholders before they go private. Then, they could ask the stock exchange to delist them. If Elon Musk’s purchase goes through, his goals to make it private may become a reality.
3. Multiple Reverse Splits
If multiple or even one reverse split has taken place, this is a sign that the company might be struggling or even restructuring. A reverse split is when a company takes multiple shares and combines them into one. One of the most common reasons a company might do this is to keep the share price over $1 per share.
4. Financial Ratios Are Questionable
If the company has had multiple questionable quarterly reports in a row, this is another sign that it could be headed for delisting. Financial struggles are never a good sign, and shareholders might respond by dumping the stock, dropping the share price precipitously.
5. An Institutional Sell-Off Is Happening
If you find that multiple institutional investors or insiders in the company are starting to drop their shares, this could be a sign that the company is getting delisted. Institutional shareholders begin to sell when the company is struggling, and if the company is struggling, it might get delisted.
6. There Are Questions Of Corporate Governance
Companies can be delisted because they violate corporate rules. If stock exchanges believe that there is questionable corporate governance, they may decide to delist that company. Pay attention to any rumors of questionable activities.
7. Warnings Are Issued and Ignored
Sometimes, stock exchanges will make warnings public. If you find that there are public warnings being issued to the company, and they are being ignored, this is a bad sign. If the warnings are ignored, the next step could be to delist the company.
Be Wary of Possible Delistings
If you are active in the stock market, you need to be wary of possible delistings. Share prices often drop before a company is delisted, so make sure you aren’t the last person to sell.