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Updated from Feb. 8 with eDiets.com delisting notice.
TheStreet) -- U.S. stocks started off the year with a winning January, as the
Dow Jones Industrial Average posted gains of as much as 2.7%, or more than 30% on an annualized basis, twice last year's increase.
Small-cap stocks fared even better, with the
Russell 2000 Index rising more than 3%, as an acceleration in global economic growth attracted investors to companies that can produce outsized profits. Lost amid the euphoria is the fact that small companies pose risks rarely present at larger peers. In fact, 19 stocks trading on the technology-heavy Nasdaq this year have been alerted of deficiencies that could force a delisting.
Those deficiencies range from violations of the minimum bid-price rule, as share prices of some penny stocks have languished below $1, to violations of audit-committee requirements, market value, proxy solicitation or even public interest.
Companies faced with a delisting typically see a detrimental effect on share prices. For instance, the
New York Stock Exchange in January delisted the stock of
Capitol Bancorp. The company's shares traded for $3 a year ago, but now can be bought for 25 cents on the Pink Sheets.
Still, because companies on exchanges' watch lists record higher-than-average volatility, risk-friendly investors have the chance to make lots of money, either by shorting the stocks on expectations shares will fall, or going long on the hopes they will live to fight another day. Fifteen companies listed on the Nasdaq received delisting warnings in December, and those stocks fell by an average 10% over the past three months.
Community Central Bank(CCBD) was the biggest loser, down 53%, while
Star Buffet(STRZ) rallied more than 70% during the same period.
Nevertheless, all 19 companies were notified in January that they're in violation of listing requirements and could be delisted from the Nasdaq. The following companies now have a limited window of time to regain compliance with the exchange's listing rules.
Educational Development(EDUC)Company Profile: Educational Development is a publisher of a line of children's books in the U.S.
Current Share Price: $6.80 (Feb. 7)
Listing Violation: Audit committee composition. The listing rule requires that a majority of the board of directors must be comprised of independent directors and that the company's audit committee have at least three members, all of whom must be independent.
Received Nasdaq Notice: Jan. 3
Management's Expected Action: Educational Development has until its next annual meeting to regain compliance with the listing requirement. "The board is currently considering candidates and intends to appoint an independent director to fill the vacancy on the board and the audit committee as soon as possible," the company said in a regulatory filing. The company said it expects that to occur before the next annual meeting.