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Financial News

Aug 30, 2019

What It Means When a Company Gets Delisted

By Team Stash

All about J.C. Penney’s warning note that its shares may be taken off the NYSE.

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UPDATE: J.C. Penney executives have been buying up the company’s stock since the New York Stock Exchange warned it about delisting, according to sources. JCP chairman Ron Tysoe purchased 1 million shares on August 19, 2019, according to reports. A week later, Jill Soltau, the company’s chief executive officer, reportedly bought 500,000 shares. J.C. Penney’s stock still traded under $1 as of August 30, 2019.

Department store chain J.C. Penney may get delisted from the New York Stock Exchange (NYSE), where its stock has traded for nearly 90 years.

Penney, based in Plano, Texas, received a warning letter from the NYSE, because its stock has traded below $1, on average, for 30 consecutive trading days, according to reports.

In order to remain listed on any exchange, a company’s stock generally must remain above $1 a share. Typically a company will be sent something called a compliance letter from the exchange on which it lists when its stock price falls below that amount, giving it about six months to get its act together.

What does it mean for a company when its stock gets delisted?

  • It’s not a good sign for the company when it’s either in danger of, or actually does get delisted. Generally speaking, it means that the company is having financial trouble, which could include declining sales, bankruptcy, or some other difficulty.
  • Different exchanges have different rules, but generally speaking, when a company’s shares falls below the $1 threshold for an extended period of time, the stock may get delisted.
  • When a company is delisted, it gets kicked off the exchange, and its shares stop trading there.
  • The company may then go on to trade on a smaller exchange, also called an “over the counter” exchange, or through something called the pink sheets.
  • Typically, before its stock is delisted, the company has about six months to get its share price back up.
  • To boost the value of its shares, a company may do something called a reverse stock split.  With a reverse stock split, a company reduces the number of shares it has for sale, which can drive up the value of the shares. It’s the opposite of a stock split, where a company increases the number of shares it has outstanding, to make the shares more affordable. (Remember the law of supply and demand: When there is more of something, it can decrease demand and price. When there is less of something, it can drive up value.)
  • A company may also be delisted if its market cap, or total dollar value on the market, falls below a certain amount over a 30-day period. In the case of the NYSE, that dollar value is $15 million.
  • Good to know: If you own stock that is delisted, you still own the shares.

Read more about exchanges here.

What’s going on with the retail sector

The retail sector is one of the largest parts of the economy, with more than 1 million private stores, and approximately $300 billion in monthly sales, according to the National Retail Federation trade group.

But the traditional retail sector has been in a slump in recent years, as it competes increasingly with online-only retailers.

In the first four months of 2019, U.S. retailers shut down nearly 6,000 stores, according to reports.

Find out more about the retail sector here.

More about J.C. Penney

Penney has been losing money for years, including a $154 million loss in the first quarter of 2019. The company has lost nearly 90% of its value in recent years, with a current market cap of about $200 million. (Compare that to Amazon’s valuation of nearly $1 trillion.)

The retailer is also seriously in debt, owing nearly $4 billion.

Penney operates 800 stores in the U.S., but closed 18 stores in 2019, and nearly 150 in 2017 and 2018, according to reports.

It first listed its stock on the NYSE in 1929.

Other companies in danger of being delisted

Earlier in 2019, drugstore chain Rite Aid was nearly delisted from the NYSE. It was able to get its stock price above the required level, and allowed to continue trading, however. Pier One Imports also received a compliance letter about its share price in February, 2019, and another one in August, for its low market cap.

Remember the Stash Way

Investing can be confusing, especially when it comes to investing in single stocks, which can be particularly volatile.

That’s why we’ve boiled down our investing philosophy into three basic principles that we hope can guide you as you make your first investing decisions. We call our approach the Stash Way. Here are its three pillars:

  • Invest for the long-term
  • Invest regularly
  • Diversify

You can learn more about the Stash Way here.

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