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What happened

Radio-frequency wireless charging company Energous (WATT -32.97%) shorted out on Wednesday, as its stock lost 32.8% of its market capitalization through 1:55 p.m. ET.

So what

Just one week ago, Energous had a bit of an earnings beat when its second-quarter losses of $0.06 per share edged out analyst forecasts for a $0.07 loss pro forma, and revenue grew 21% year over year.  

That sounds pretty good, and indeed, Energous stock responded positively to the news at first, gaining 3% after earnings came out. Problem was, it couldn’t hold on to those gains, and its stock has been sinking ever since.

One day after the earnings beat, all the gains evaporated as investors presumably keyed in on the facts that Energous was still losing money (even if it’s losing less money than feared) and only selling about $117,000 worth of gear per quarter. That’s not a lot of sales for a stock with a market cap of well north of $200 million.  

And then came the really bad news, just after noon yesterday. Energous warned investors that it would implement a 1-for-20 reverse stock split (i.e., for every 20 shares investors thought they had, they would soon only have one share). And management gave investors very little time to react to the news, announcing it would implement the split just a few hours later, a minute after midnight this morning.

Now what

So you can see why investors might be a bit miffed this morning.

Not only has the company reverse-split its stock (effectively an admission that there’s no other way to lift the stock price and maintain its Nasdaq listing, because business really isn’t going so great). Management also gave investors almost no warning about its decision before implementing it. A reverse split had been authorized at the company’s stockholders meeting in June, but no date had been set.

You could argue that since the news was bad anyway, and investors were likely to be upset, it was best to just rip the bandage off and get it over with. And that’s exactly what it did.

But Energous management can hardly complain now if the effect of this move is a whole lot of bleeding.

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.

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