Most investors fear a reverse split and they reall
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Posted On: 09/21/2017 12:19:44 PM
Most investors fear a reverse split and they really should not.
Reasons for a Reverse Stock Split
So, if the market views reverse stock splits with a jaundiced eye, you may ask, why would a company decide to do such a split? The reasons are varied, and include:
1. The desire to increase the share price, especially if the shares are penny stocks. Low prices tend to elicit negative emotions in investors and inhibit the attention of the big money on Wall Street or coverage by major research firms.
2. Companies looking to create spinoffs at attractive prices may use reverse splits. Tyco International (TYC), Motorola Solutions (MSI) and Time Warner (TWX) all employed this strategy when they broke up their companies.
3. Major stock exchanges have minimum dollar amounts for the price of the stocks they list. So, to stay listed, a low-priced stock may reverse split in order to push its price to those minimums.
4. And one more reason from Thomas Rice of The Bowser Report: a reverse split may just be an attempt to extend the life of a slipping stock.
However, while the last two reasons are mostly negative, the first two can be greeted as positive strategies by investors who take their reverse splits in stride, especially if they are confident that the company is serious about a turnaround or strategy to improve its fortunes.
Reasons for a Reverse Stock Split
So, if the market views reverse stock splits with a jaundiced eye, you may ask, why would a company decide to do such a split? The reasons are varied, and include:
1. The desire to increase the share price, especially if the shares are penny stocks. Low prices tend to elicit negative emotions in investors and inhibit the attention of the big money on Wall Street or coverage by major research firms.
2. Companies looking to create spinoffs at attractive prices may use reverse splits. Tyco International (TYC), Motorola Solutions (MSI) and Time Warner (TWX) all employed this strategy when they broke up their companies.
3. Major stock exchanges have minimum dollar amounts for the price of the stocks they list. So, to stay listed, a low-priced stock may reverse split in order to push its price to those minimums.
4. And one more reason from Thomas Rice of The Bowser Report: a reverse split may just be an attempt to extend the life of a slipping stock.
However, while the last two reasons are mostly negative, the first two can be greeted as positive strategies by investors who take their reverse splits in stride, especially if they are confident that the company is serious about a turnaround or strategy to improve its fortunes.
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