What will a reverse stock split likely do to the share price, beyond the simple multiplication?

Answer 1

It really depends on the substance of the stock behind it. Ant is right that most reverse splits turn out badly. Most times, a reverse split is done because the shares have fallen down into the penny stock category (below $5 per share) that threatens their ability to remain listed on an exchange. Usually when they've fallen that low in price it is because there's no substance behind the story, so it's already trading purely on hope and gambles. For companies like that, a reverse split is usually a disaster, because there's nothing (such as earnings) to hold the shares up to a higher price, and they usually fall back to the original price within months. So you end up with the same worthless stock with fewer shares.

If, however the company has substance (earnings, etc.), a reverse split can be a good thing. Priceline was one in recent years that worked out well. After the split, the stock recovered, based on earnings.

Answer 2

As usual eagleperch has it right, so does ant. I had 500 shares of Palm that I bought for $4 per share. Palm reversed split and now I have 50 shares at $16. My share will have to go to $40 before I can recover my original investment. Palm has struggled and been successful in the hand held digital device market, but I won't live long enough for it to get to $40.

Answer 3

I believe a "reverse stock split" means that the shareholders will have to turn in two shares to receive one new one.
That will increase the price of the shares. However, the new share price may or may not be equal to the price of two of the old shares. This is only my opinion.

Answer 4

Majority of reverse splits turn bad. Although your share price increases, your holding decreases. From there, the tendency is for the stock to drop back down to where it started. I did say majority turn bad, not all. Goodluck.

Answer 5

nothing - the price will increase due to "the simple multiplication". You will hold fewer shares of a higher priced stock. Other than that, there should be zero impact.

Answer 6

It'll cause a short term buyer's rush. This will, in turn, drive the price per share up.

Answer 7

It's all up to the investors. They will either sell or buy. At the end of the day your price will go up or down. I"m betting down.

Answer 8

Long term 90% of the time the company will go bankrupt.

You better sell when you see it turn GREEN!

Answer 9

the kiss of death.