But it's this latter point that has McGonigle, Mullin and
the rest of the Longport staff worked up. "We're not sure
that trading on the OTC Bulletin Board will allow the company to
achieve its full valuation," says McGonigle. For instance, the
company's first-quarter profit of $1.01 million on revenues of
$1.23 million, a revenue jump of more than 1,700 percent from the
comparable period a year ago, pushed the stock up nicely but not
commensurately with revenues or earnings.
The problem, says McGonigle, is that as an OTC Bulletin Board
stock, investors can look at you, but they can't touch. Many of
the major wirehouses have a policy against buying and selling
Bulletin Board stocks. This means their brokers can't pitch
these companies to their clients, and their research staffs
can't write research on them. "The vast majority of retail
investors are diverted from even looking at Bulletin Board
companies," says McGonigle. Meanwhile, most institutional
investors are too big to profitably invest in Longport. While there
are still independent investors and brokers out there who can buy
and sell whatever stock they want, there are not nearly enough to
provide an active, liquid trading market for all the Longports of
the world.
About the only way to overcome this second-class--sometimes
referred to as "designated"--status is to graduate to the
SmallCap tier of the market. But in one of the great Catch-22s of
all time, the inability to develop the kind of sponsorship on the
Bulletin Board that opens the company up to more investors, and
hopefully a higher stock price, is also what keeps companies from
reaching the minimum $4-per-share price that is required for a
SmallCap listing.
Content Continues Below
There are several other requirements to getting listed on the
SmallCap market, but if share price is the only outstanding issue
for a company, sometimes management will reverse-split the
stock--that is, instead of having 4 million shares outstanding at
$2.50, the company will "recapitalize," causing only 2
million shares to be outstanding, but at a price of $5 each. This
can be dangerous, however, because if no new interest is generated
for the stock, it can drift down to its old level--in effect
halving the value of the company.
The way out for many companies is to hire an investment banking
firm. Because most firms don't want to work with Bulletin Board
companies, an investment banker's priority will be
restructuring the company and bringing in new investors so it can
trade on Nasdaq's upper tiers.
Mullin and McGonigle are contemplating such a move but
aren't sold on its merits yet. Says McGonigle, "I still
think the markets should be a democracy. If we succeed, the
investors should be able to share our success no matter where we
trade."
Page
1 |
2 |
3 | 4 |
5 