Shares of Standard Register nosedived Wednesday, falling 54 cents to $1.93 — about 22 percent below the close of trading a day earlier.
Recent news that one of the Dayton area’s oldest and most venerable employers has hired three financial advisory firms that specialize in corporate restructuring and asset sales to help “explore the best options for the company going forward” has fueled investors’ concerns about the company’s liquidity.
In addition, the Dayton-based document management firm recently asked its creditors for more time to meet specific quarterly financial covenants, sending many investors scrambling for the exits or “shorting” the stock, betting the company’s already depressed share price will collapse even further.
Short sellers borrow stock from a broker to sell at current prices, promising to cover their position, or return the stock to the broker by the end of a certain period. If the price declines, the investor can buy shares in the open market at the lower price and sell them back to the broker at the borrowed price, pocketing the difference.
More than 500,000 shares of Standard Register stock had been shorted by investors by the close of trading on Jan. 15, representing about 9 percent of the 5.72 million shares that are available for trading by the general public, according to stock market data.
Short selling has helped drive down the company’s share price by more than 80 percent from its 52-week high of $11.95, and the company continues to be heavily traded.
On Wednesday, nearly 155,000 shares traded hands — or about 10 times the average daily volume of Standard Register shares traded over the past 90 days.
“More and more investors seem to be betting on the demise of the company, and investors that are shorting a $2 stock at this point are betting on the share price going to zero,” said Matthew Ingram, a finance and financial services lecturer at Wright State University. “But investors may not be correct. The short selling doesn’t mean the share price is going to go down, it just means more and more people are betting that it will.”
A declining stock price may also jeopardize Standard Register’s standing on the New York Stock Exchange. The company was in danger of being delisted after falling below the exchange’s 30-day average market capitalization requirement of $50 million before submitting a plan last fall to the NYSE to meet the threshold and remain on the exchange.
But every drop in the stock price moves Standard Register further away from the threshold because its market capitalization is equal to the share price times the total number of outstanding shares.
Standard Register, which will release its fourth-quarter earnings in February, had a market capitalization of $16.64 million at the close of trading Wednesday.