Reverse Stock Splits: What They Mean for Investors
Consolidating Shares: Reverse stock splits reduce the number of outstanding shares, increasing the price per share without altering total market value
Perception of Weakness: Often used by struggling companies to meet stock exchange listing requirements, reverse splits can signal financial trouble
Impact on Shareholders: Existing shareholders own fewer shares post-split, but their overall investment value remains the same, barring market fluctuations
Liquidity Concerns: A higher stock price post-split may reduce liquidity, as fewer investors can afford the stock or choose to trade it
Potential for Decline: Historically, reverse stock splits have been followed by declines in stock price, so investors should carefully assess the company’s fundamentals