Radio stocks still have a long way to go


You may have read some stories elsewhere high-fiving the radio industry for mostly getting stock prices back above a buck a share. That apparently stems from ignorance of what constitutes a “penny stock.”

The $1 threshold is important, because the major exchanges will delist any stock that fails to close above a dollar a share for an extended period of time. There are other criteria for maintaining an exchange listing, but the buck a share minimum is one that is very easy to understand and follow.

Yes, it is important that Sirius XM has moved above $1 and, assuming that holds, will not have to worry about a delisting by Nasdaq. Yes, it would be an important accomplishment for Spanish Broadcasting System to move up another two bits or so and also erase any delisting concerns. But that’s not the whole ballgame.

The definition of a “penny stock” is not, as many apparently believe, a stock that trades for a price from one cent (or even a fraction) to 99 cents. The actual threshold is a stock price of $5 per share. Many mutual funds, pension funds and other institutional investors have prohibitions against owning stocks that trade publicly for less than five bucks.

So long as many radio stocks are below $5 per share, many of those big investment funds can’t and won’t buy them. That’s a long list, including Beasley, CC Media Holdings (which is not listed on an exchange anyway), Cumulus, Emmis, Entravision, Journal, Radio One and, of course, Sirius XM. And that’s not to mention the ones so far down that they are still trying to make it to a buck: Citadel (which is in bankruptcy), Debut, Regent and SBS.

Only two radio companies which were below the $5 mark during the worst of the advertising recession have managed to climb back out. Those are Entercom and Salem. The others still have a ways to go before they escape “penny stock hell.”

RBR-TVBR observation: Two radio companies escaped from “penny stock hell” through the mechanism of reverse stock splits, but it is a risky thing to do – which may well be why Sirius XM CEO Mel Karmazin is so dead set against it. Sometimes a reverse split just starts the stock on a new price slide. Saga Communications was successful with its 1-for-4 reverse split in January 2009 and, with improving operating results, has continued to build its stock price. Westwood One did a 1-for-200 reverse split in August 2009 as part of a financial restructuring. Its stock price has been volatile because investors have lingering concerns about its business prospects. It has at times slipped below the $5 barrier. In short, any company looking to do a reverse split to improve trading in its stock should be very cautious and consider all of the potential outcomes of such a move.