Key points:
- Ra Medical is up 5,000% or down 8%?
- This depends upon whether we look at nominal or real prices
- It's real prices that matter, they're what affect our wallets
Ra Medical (NYSE: RMED) could be said to have jumped 5,000% at the close of play on Friday. Or, alternatively, it fell 7.99% – what we might, among friends, call 8%. Which way we describe this will depend upon what use we want to put the description to. For it's entirely true that the price of one Ra Metal stock jumped that 5,000% – but the value of Ra Medical fell by that 8%. That is, we've a significant difference here between nominal and real values. Distinguishing between the two is important because only one of them makes a difference to our pocketbooks.
As to what Ra Medical actually does it makes and supplies excimer lasers for treating vascular inflammatory disease. Think – although not quite accurate – lasers to treat varicose veins sort of thing. We don't need to be that accurate as RMED is in the process of merging with Catheter Precision, a formerly private company. And it's going to be the Catheter stockholders who end up with 80% or so of the newly merged company.
It's possible to see this not so much as a merger – although it is one of those – as a way to bring that formerly private Catheter onto the market. It's also this which explains the 5,000% rise in the RMED stock price. Because there's no point in using a merger to get onto the market if the listing is about to be cancelled. The Ra Medical stock price meaning that there was a significant risk of just that, being relegated down to the OTC markets.
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The risk here is purely from fashion – the American markets believe that a “good” stock price is in the $10 to $100 range. It is just fashion, London thinks it's £1 to £10. What follows from this in the US markets is that penny stocks are thought to be the preserve of charlatans. Therefore there's a minimum offer price of $1 to be on the major markets – NYSE, NASDAQ and so on. The RMED stock price has been below this since early this year and would, in time, lose its listing.
There's no point in Catheter merging into a company to come to market if that company is about to lose the market listing. So, a solution needs to be found and one was – a reverse stock split. What were 50 shares in Ra Medical are now just the one. This shouldn't change the value of the company – except for whatever value there is to not losing the listing – nor of any particular stockholding. It just changes the number of pieces of paper that make up those values.
So, we've that purely nominal change in the price of 5,000%. $0.13, or thirteen cents, to what should be $6.50 on the theoretic basis. Except the price actually is $6 (actually, $5.99) which is where we get our 8% fall from. That's the real price change, not the nominal one.
That difference between nominal and real prices is quite important, umm, really.
