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A delisted stock could impact your portfolio. Read on to learn more.
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The stocks people buy and hold in their brokerage accounts are generally stocks that are listed on a public exchange, like the New York Stock Exchange or Nasdaq. There are rules that companies have to follow to trade on public exchanges, and there are financial requirements that need to be met. When this doesn’t happen, it’s possible for a stock to become delisted. This means it’s removed from a public exchange.
This doesn’t automatically mean that the stock in question is worth nothing, and that you can’t still trade it. But delisted stocks tend to see their value drop, and in many cases, quickly. And trading them can become complicated. So if you own shares of a company you think might get delisted, you may want to sell them before that happens.
Why do companies get delisted?
Stock exchanges set rules that listed companies must follow. Failure to follow those rules could lead to a stock getting delisted. For example, failing to file certain financial reports could be grounds for getting delisted.
There are also financial requirements that companies need to adhere to. For a stock to stay listed on the Nasdaq, for example, it must have a $1 minimum share price. It also has to adhere to one or more of the following:
Have a market capitalization of at least $50 million (which is measured by stock price multiplied by shares outstanding)Have total assets and revenue of at least $50 millionHave shareholders’ equity total at least $10 million
Keep in mind that some companies can actively seek to be delisted. This could happen if they decide they want to become privately held.
What to do if a stock of yours gets delisted
When a stock gets delisted, its value isn’t automatically wiped out. But often, stocks get delisted when companies find themselves in bankruptcy or on the verge of it. And that has the potential to render your stock worthless, or worth very little.
Also, once a stock is delisted, it’s possible to buy and sell shares in what’s known as the over-the-counter market. This means those shares trade through private brokers.
It’s generally best to try to sell your shares before a company gets delisted. So if you own shares of a given company and there are rumors of a near-term bankruptcy filing, that should signal to you that a delisting of that stock may be in the cards. And in that case, it may be a good idea to sell your shares before that happens.
As an example, you might remember Sears, the once-beloved department store that ran into tough financial times. Sears was delisted in late October 2018. Its final share price before its Nasdaq delisting was $0.36 a share. Just a week or so prior, Sears had filed for bankruptcy.
Can a delisted stock get relisted?
It’s certainly possible. But it also doesn’t tend to happen all that often. For a company to get relisted, it would need to solve the issues that led it to get delisted. But since those issues are often financial in nature, that’s not always possible.
For example, many companies file for bankruptcy and close up operations. So in that case, a relisting is unlikely.
It’s not always possible to predict when a company will get delisted. But if you keep tabs on your investments, it’s a situation you might be able to get ahead of.
Of course, if you’re worried about the idea of having stocks you own delisted, you could opt to load your portfolio with broad market ETFs instead. Although it’s possible for ETFs to get delisted, too, if you own shares of something like an S&P 500 ETF, that may be less likely to happen, since in this case, you’re tracking a giant index instead of investing in a single company.
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