Being listed on a stock exchange is a privilege, not a right. Companies that want to sell on the New York Stock Exchange have to meet the NYSE standards to become listed. They have to maintain conformity to these standards to stay on the "Big Board." The standards allow for dollar stocks, but they're a rare sight.
To begin selling on the NYSE, a corporation needs a minimum 1.1 million shares with a value of at least $40 million. The price per share has to be at least $4. The company also has to meet one of several alternative financial criteria. It can qualify with tests based on earnings, assets plus equity or valuation plus either revenue or cash flow. A company offering dollar shares isn't going to find a home at the Big Board.
Once a company is established on the exchange, its stock can drop below $4 without penalty. It can even drop below a buck, but not for long. If the average closing price for a 30-day trading period is under a dollar, the NYSE will review and possibly delist the stock. The corporation must meet other standards as well, such as keeping revenues and capitalization above a minimum level.
If the Big Board finds a stock no longer qualifies to stay listed, it will tell the corporation issuing the stock. The company can try to fix the problem. If stock price is the issue, for instance, it can stay on the board if within six months the company raises the average price above $1. The company also has to issue a press release saying it's in danger of becoming delisted. It can still trade if delisted, but not on the NYSE.
By itself, stock price doesn't always tell you much about the worth of the company. One measure you can use is the price/earnings ratio -- the stock price divided by the earnings per share. Dollar shares with 50 cents in earnings and $20 shares with $10 in earnings both have a ratio of 2. This is one of several ways you can compare companies of different sizes and stock prices.
A graduate of Oberlin College, Fraser Sherman began writing in 1981. Since then he's researched and written newspaper and magazine stories on city government, court cases, business, real estate and finance, the uses of new technologies and film history. Sherman has worked for more than a decade as a newspaper reporter, and his magazine articles have been published in "Newsweek," "Air & Space," "Backpacker" and "Boys' Life." Sherman is also the author of three film reference books, with a fourth currently under way.