Why ChargePoint Stock Crashed Today

Key Points

• ChargePoint stock just reverse-split its stock 20-for-1.

• The shares now cost $10-plus, and won't be immediately delisted.

• A reverse share split is almost always a clue something's seriously wrong with a company.

• 10 stocks we like better than ChargePoint ›

Shares of ChargePoint (NYSE: CHPT), the electric car charging company, tumbled 14.3% through 10:50 a.m. ET Monday morning after conducting a 1-for-20 reverse stock split.

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What is a reverse split?

Like the name suggests, a reverse stock split is the opposite of a stock split. Instead of taking one share of stock and slicing it into several smaller shares, each costing less and representing a smaller ownership stake in the company, a reverse split merges several existing shares into one larger, higher-priced share.

From a shareholder's perspective, after a reverse split happens, you own fewer shares than you started with, but they have a higher price. Your actual ownership stake in the company, however, doesn't change after a reverse stock split (or for that matter, after an ordinary stock split, either).

Why reverse split?

So what's the point of a reverse split? ChargePoint explains: "The reverse stock split is intended to increase the market price per share of the Company's common stock and help the Company comply with the minimum trading price criteria for continued listing on the New York Stock Exchange."

Simply put, ChargePoint shares were selling below the $1-per-share requirement for remaining listed. To fix that, the company squished 20 shares together to create one big super-share costing more than $1 (in fact, more than $10 right now). As a result, it's no longer in danger of immediate delisting.

Is ChargePoint stock a buy?

No, ChargePoint stock is not a buy. The fact that ChargePoint wasn't able to boost its stock price by, say, growing its sales or reporting a profit, and saw no alternative but to reverse-split its way out of its listing dilemma, tells me this company is not performing at all well.

It's almost certainly a sell.

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Rich Smith has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.