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Replies to post #43935 on Sigma Labs Inc (SASI)
07/21/16 9:07 PM
Tracking potential uplisting candidates is well worth the effort because uplistings typically result in a significant inflow of new investor demand to a previously underfollowed stock. There are many institutional investors who may be very interested in a specific sector or company but who will simply not invest in an OTC stock.
As soon as the stock becomes Nasdaq or Amex listed, those funds will jump in immediately, giving the stock a boost. Due to the lack of institutional following, many research analysts are reluctant to initiate coverage on OTC stocks, which in itself contributes to a lack of investment by institution funds.
In order to identify and track potential uplisting candidates, it is important to understand the criteria for an uplisting and watch for OTC traded companies that are actively looking to fulfill these criteria.
The most obvious criteria that issuers seek to satisfy are stock-price thresholds and corporate governance requirements. The Amex requires a minimum share price of $3 and the Nasdaq requires $4. As a result, small-cap companies that intend to uplist will typically undergo a reverse split in order to meet the minimum share price level. DEER, RINO, CBEH, PUDZ and CAGC all underwent this identical process.
A second tip-off is a ticker change or other corporate governance changes that are done to accommodate the listing. For example, Puda reincorporated in Delaware just prior to the uplisting. Another change to watch is changes to the composition of the board of directors. These are done to satisfy listing requirements at the Nasdaq and Amex which require a certain minimum number of independent directors on audit and compensation committees.
A third tip-off is when institutional investors are already taking an interest in an OTC stock. This was the case for both CAGC and PUDZ, which both presented at Rodman & Renshaw ( RODM). It is also the case for potential uplisters LLFH and CBPO, both of which still trade OTC and yet were featured presenters at Rodman & Renshaw.
China Biologic Products, China Digital Communications and L&L International Holdings all show signs of being in the next round of uplistings.
CBPO recently presented at the Rodman & Renshaw conference in New York and recently raised more than $9 million in a private placement. The company completed its reverse split in 2008 and currently trades at $5.80, well above the threshold for Nasdaq or Amex.
L&L also attended the Rodman & Renshaw conference. Last year the company conducted reverse split and changed its accounting firm to Kabani & Co., a well-known U.S.- listed small-cap firm. The stock is currently trading at $4.75.
China Digital has publicly stated that it is looking into an uplisting and is currently looking to hire an international CFO. Following its 10:1 split in July, the company now trades at $4.30.
Many investors had accurately predicted the up-listing of Puda and China Agritech for much of this year, and yet when the uplisting occurred, there was still a significant run-up in the stock price. Why does this profit opportunity persist?
I believe it is simply because institutional funds and research providers avoid OTC stocks, leaving that category of investing to the individual investor. For those of us willing to play this corner of the market, this seems like one case where the individual investor might have an actual advantage over the institutions.
-- Written by Rick Pearson in Beijing
Fact No. 1. Uplisting isn't automatic. After a company meets all of the requirements for an uplisting, including financial requirements, corporate governance requirements and share price, it is still up to Nasdaq or Amex to give final approval. Sometimes, as in the case of SinoCoking ( SCOK), this happens almost immediately. Other times, as in the case of Subaye ( SBAY), it can take a number of weeks. The conclusions are that timing on uplistings is uncertain, timing depends entirely on Nasdaq approval, and it pays to be patient. Because I missed out on the massive Sinocoking run and a few others, I typically try to get in early and then be patient rather than waiting until it is too late.
Fact No. 2. The required share price to uplist to Nasdaq is $4. The price is determined by the bid price, not the closing price, of the stock. In April 2009, Nasdaq lowered its share price threshold to $4 from $5. This was presumably due to the impact that the financial crisis had on share prices, but could also be seen as a move to take some business from the Amex exchange. Both the Amex and the Nasdaq charge substantial listing fees to companies for listing on their exchanges and both are eager to maximize revenue. Amex has a lower required share price of $2 to $3 for an uplisting.
Fact No. 3. It doesn't take 90 trading days with a bid above $4 to uplist to Nasdaq.
The 90-day misconception comes from the fact that some companies that are not yet profitable and that lack an adequate operating history can still list on Nasdaq, but only if their bid price is above $4 for 90 consecutive trading days and if they meet other criteria.
Fact No. 4 . Reverse splits are a sign of good things for companies on the way up, but a sign of bad things for companies on the way down.
In order to meet the minimum share price requirements for Nasdaq, many companies will conduct a reverse split. This is perfectly acceptable to the exchange, and the post-split share price will be evaluated accordingly.
Using a reverse split to raise the share price and obtain an uplisting is a very positive sign for a company and is much different than companies that use a reverse split to prevent being delisted.
