I was curious about the impact on stock price for an OTC stock that obtains a listing in one of the three major U.S. stock exchanges. I couldn't find any statistical information so I created my own analyses. This article is what I found about the OTC uplist process.
There are many companies that indicate that they will be applying for a listing but are far from eligible. This means that it is a perceived upgrade to be listed. Sure enough, there are stricter requirements for a listing, including SEC reporting and a listed company is generally considered a stronger company that an OTC stock. Additionally, many funds are prohibited by their own definition from buying OTC stocks. Obtaining a listing, therefore provides a greater pool of potential investors and greater liquidity as well as reducing the bid and ask spread.
OTC, or over the counter stocks, trade in a decentralized market not subject to reporting requirements as are listed stocks and offer less transparency. OTC stocks that are approved for a listing are called Jumpers.
NYSE listing requirements include a minimum price of $4 per share, 1.1 million shares outstanding with a market value of public shares in excess of $40 million, and a minimum of 400 round lot shareholders.
NASDAQ listing requirements include a minimum bid price of $4 per share, 1 million shares outstanding, at least 3 market makers, and a minimum of 300 round lot shareholders.
AMEX listing requirements must meet one of the following:
- Have a pre-tax income in the most recent fiscal year or in two of the prior three fiscal years in excess of $750,000, a market value of the public float in excess of $3 million, a minimum stock price of $3, and total shareholders' equity in excess of $4 million.
- Have a market value of the public float in excess of $15 million, a minimum stock price of $3, two years of operating history, and total shareholders' equity in excess of $4 million.
- Have a total market capitalization in excess of $50 million, a market value of the public float in excess of $15 million, a minimum stock price of $2, and total shareholders' equity in excess of $4 million. The company must also meet a minimum number of round lot shareholders relative to the number of shares available in the public float.
For this study, I used stocks that were uplisted from OTC to one of the three major exchanges during the first three quarter of 2015. What I looked for was a spike in price prior to uplisting and ignored the overall trend if there was a spike on announcing application for listing. Then I looked at the spike in price on uplist and measured the spike in price over the subsequent short term. Finally, I looked at the current stock price, which is at least two quarters subsequent to the uplisting.
First quarter 2015 OTC uplisted stocks:
|STOCK SYMBOL||UPLIST DATE||NEW EXCH||TREND PRIOR||ON UPLIST||TREND AFTER|
|CPS||1-15-15||NAZ||UP||30% GAIN||NEW LOW|
|VUZI||1-28-15||NAZ||UP||30% GAIN||NEW HIGH|
|NSAT||2-10-15||NYSE||FLAT||10% GAIN||NEW LOW|
|LBIO||2-26-15||NAZ||FLAT||100% GAIN||NEW LOW|
|SLTD||3-4-15||NAZ||DOWN||30% GAIN||BACK TO UPLIST PRICE|
|CAPR||3-9-15||NAZ||DOWN||100% GAIN||NEW LOW|
Second quarter 2015 uplisted stocks:
|UPLIST DATE||NEW EXCH||TREND PRIOR||ON UPLIST||TREND AFTER|
|CRBP||4-16-15||NAZ||DOWN||100% GAIN||NEW LOW|
|NVIV||4-17-15||NAZ||UP||100% GAIN||NEW LOW|
|RELY||4-21-15||NAZ||UP||50% GAIN||NEW LOW|
|ONCS||5-29-15||NAZ||DOWN||30% GAIN||NEW LOW|
|MLSS||6-1-15||NAZ||UP||30% GAIN||NEW LOW|
|CYNA||6-18-15||NAZ||FLAT||25% GAIN||BACK TO UPLIST PRICE|
|PIRS||6-30-15||NAZ||FLAT||25% GAIN||NEW LOW|
Third quarter 2015 uplisted stocks:
|STOCK SYMBOL||UPLIST DATE||NEW EXCH||TREND PRIOR||ON UPLIST||TREND AFTER|
|PGLC||7-6-15||NAZ||UP||NEW LOW||NEW LOW|
|ITUS||7-10-15||NAZ||UP||100% GAIN||BACK TO UPLIST PRICE|
|AEMD||7-13-15||NAZ||DOWN||50% GAIN||NEW LOW|
|EYEG||7-31-15||NAZ||FLAT||300% GAIN||BACK TO UPLIST PRICE|
|SITO||8-10-15||NAZ||UP||25% GAIN||BACK TO UPLIST PRICE|
|STAF||9-29-15||NAZ||UP||100% GAIN||BACK TO UPLIST PRICE|
I wanted to capture a picture of the general price movement and didn't take the time to capture the exact price change. The price swings I used are not based on closing prices, and do no capture the maximum gain that could have been obtained from the listing application to the uplisting. I am just trying to establish if there is or isn't a price movement associated with uplisting and it's simple to see that a profit exceeding 25% was available on almost 60% of the OTC stocks that were uplisted during the first three quarters of 2015, but if these stocks were held for a period following their uplisting, less than 10% had stock prices that were higher than prior to uplisting. I do not know if this is due to the general overall market.
The purpose of this study was just to evaluate if uplisting was an overall positive effect on stock price. My conclusion is that uplisting is an initial boost to stock price and subsequently, overall market conditions along with the individual stock's fundamentals will become the overwhelming factors behind stock price movement.
Price gains from uplisting can be quite spectacular and quick as cited by Casey Research:
- RINO International (OTC:RINO) uplisted to the NASDAQ in July 2009 and initially saw its price jump 12% from $9.10 to over $10.19 the day the uplisting was announced. Since uplisting, the stock closed as high as $34.25 in November 2009 - more than 275% above its pre-NASDAQ price.
- Deer Consumer Products (NASDAQ:DEER) saw its stock trade up over 50% in one week following the announcement it was approved for listing on the NASDAQ. And it's currently trading about 70% above its split adjusted pre-NASDAQ price.
- China Bio Energy (OTCPK:CBEH) was trading at $5 in July 2009 and then jumped 10% on the day of its NASDAQ approval. It now trades at $11.37 - more than 125% above its pre-NASDAQ price.
- L&L Energy (NASDAQ:LLEN) is up 75% since it was uplisted to the NASDAQ in February, while the NASDAQ overall is only up 15% over the same period.
There are many subscriber services such as StockJumpers and the one cited above that provide uplisting candidate information. I don't subscribe to any and therefore do not know if any provide useful or reliable information, I avoid these "service providers" due to the lack of liquidity and volatility inherent in OTC stocks. I don't want to suffer the trading equivalent of being left standing when the music stops.
It's not easy finding investable uplisting ideas independently. One method is to look for OTC stocks doing reverse splits in order to increase their share price in order to meet listing requirements. Another method is to a search for uplisting mentioned in conference calls or earnings releases. It is important to review company financials to verify eligibility for listing to avoid stocks that are being hyped. An excellent exclusive SA article from Bleeker Street Research cites numerous occasions where Cellceutix (CTIX) indicated they would be seeking an uplisting and the share price soared from $1.50 to about $5.00, only to crater to new lows.
I have written a few articles on Uniroyal Global Engineered Products (OTCQB:UNIR), which trades at less than half its sales and is poised to obtain a listing in the near term:
|Stockholders' Equity||5 million||yes|
|Market Value of Publicly Held Shares||15 million||yes|
|Operating History||2 years||yes|
|Publicly Held Shares||1 million||yes|
The stock price is currently $3.30 and is likely to spike higher, at least to meet the listing requirement minimum or the company could initiate a reverse stock split to boost the per share price. UNIR management has indicated, as I've related in a previous article, that they would be seeking an uplisting subsequent to the filing of their 10-K later this month.
In conclusion, be wary of companies that state their intention is to be listed but aren't eligible and invest early in companies that are eligible in order to reap the huge upside potential, despite what the overall market tide is. I will be looking for stocks that have yet to run up in price and have upside potential from uplisting as subjects for future articles. Please do your own due diligence prior to investing.
Disclosure: I am/we are long UNIR.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Editor's Note: This article covers one or more stocks trading at less than $1 per share and/or with less than a $100 million market cap. Please be aware of the risks associated with these stocks.