One of my models recently gave me a buy recommendation for a company that plans to delist its stock from the NASDAQ. The delisting is voluntary only in the sense that the company has decided not to appeal NASDAQ’s deficiency notice (the market value of its publicly held shares is below the required 15 million minimum).
I don’t have any data on this but my feeling is that stocks that delist generally have bad outcomes, at least in the near/mid-term. I’d also expect that liquidity will drop off considerably after the delisting, making getting out a lot more difficult than getting in.
Anyone disagree or have any “delisting success stories?” I’m thinking this stock is a pass despite the continued high rank.
There’s a delicate balance of too much and to little information. But I’ve had some success in murky waters.
Specifically, I was fishing the Chinese reverse IPO market in 2011-2013. Most of these were bad news for investors. And the market knew it, so stayed away. As a result, I was able to buy some decent, above-board Chinese stocks for pennies on the dollars. Wall Street’s general aversion made pretty easy to separate the bargains from the traps. These were the days when I would buy options with 10x returns.
As the old Chinese proverb goes, “it is easy to catch fish in muddy waters”.
Unfortunately, I haven’t been able to find as juicy a market to play in since then. I thought I could with oil producers after the oil crash of 2014, but these were all duds. The fact that I was positive in these years was miraculous, and mainly a testament of my call to overweight petchems vs field production.
In fact, I would even hazard against using fundamental algos to find the bargains in this space because shady companies report shady numbers. To play this market, we gotta dig deeper than the statements of accounting to really understand the business, its management, the competitive market, and regulatory oversight mechanisms.
I don’t know alot about the delisting topic - just not something I deal with - but I wanted to post this study from 1999 showing poor returns if it’s helpful. At the time it sounds like data was incomplete, opaque, and not well tracked - even unclear if the same security emerged from delisting that went in. I don’t know anything about recent studies, but your question just generated interest and this is something that popped up. Hope it helps.
Thanks to you both for your thoughts. Very interesting study, Spaceman.
If the authors are correct then CRSP contains a pretty significant bias that makes small NASDAQ stocks seem like much better bets than they actually are (at least for the period in the study, 1972-1995).