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Reverse stock split implications

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Reverse stock split implications

Old 10-14-2016, 09:52 AM
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Default Reverse stock split implications

For all you financial guys,

I own stock in a company (banking business) that sent me information requiring voting for or against a reverse stock split. The deal is to combine five shares into one to "artificially" raise the stock price. The overall capitalization obviously remains the same. I have never owned any stock where this has happened. I have read that this is not a good thing.

The stock has however doubled in price since 2014 and i have a significant amount of it. I have made a good bit of money if I just cash it in today.

Any advice regarding this situation? This is a new one for me.
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Old 10-14-2016, 10:09 AM
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Doing it in of itself isn't the issue; the problem is why did the stock get to that point and what's being done to increase the real value of the company.
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Old 10-14-2016, 10:16 AM
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Common thing
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Old 10-14-2016, 10:16 AM
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Sell
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Old 10-14-2016, 10:36 AM
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The only times I've seen it done is when a company is close to be delisted. I can't think of any positive reason for doing it. What is the current share price and what exchange is it listed on?
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Old 10-14-2016, 10:38 AM
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Some mutual funds are not allowed to buy stocks for less than $5 so that is one reason. Reverse splits can be better than a normal split in that they lower the number of outstanding shares. With less float there may be less short selling as their are fewer shares to borrow.
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Old 10-14-2016, 10:44 AM
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Can be a good thing if you want to raise your price per share to a level that prevents the masses from being able to purchase it. Can decrease volatility.
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Old 10-14-2016, 11:17 AM
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Alcoa (AA) just did this, 3 for 1, and the stock fell 20% in 4 days!

Not saying the reverse split caused the drop, but I'm certain it didn't help.
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Old 10-14-2016, 11:47 AM
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Originally Posted by Jus Teasin View Post
Alcoa (AA) just did this, 3 for 1, and the stock fell 20% in 4 days!

Not saying the reverse split caused the drop, but I'm certain it didn't help.
Alcoa sh*t their pants on earnings. Plus the company is going to split itself up into the commodity aluminum business and a finished product (think Ford and Aerospace) business.
You are correct though in that a reverse split is generally because the price has been hammered.
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Old 10-14-2016, 02:18 PM
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Never seems to be a good thing.
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Old 10-14-2016, 03:19 PM
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Need more details - just name the company...
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Old 10-14-2016, 05:38 PM
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Sell !!!!!!!!!!!!!
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Old 10-14-2016, 05:52 PM
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Why not just tell us what stock??
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Old 10-14-2016, 06:12 PM
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I once owned a stock that did a 1000 to 1 reverse stock split.

It's never a good thing unless there are some extreme circumstances.
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Old 10-15-2016, 07:02 AM
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Originally Posted by phillipgo View Post
Never seems to be a good thing.
There are some exceptions, but for the most part you are right. I usually hit the road when one is announced. If its a low price stock its usually selling there for a reason....artificially raising the price thru a reverse split doesn't change that.
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Old 10-15-2016, 07:21 AM
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The stock symbol is FOFN, a small regional bank. Price is around 2 dollars. Thanks for the posts. I bought quite a bit at a dollar in 2014 and will do ok if I sell now. Appreciate the Telly's. If the reverse split goes thru that would put each share at around 10-11 bucks
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Old 10-15-2016, 07:40 AM
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The only time I owned one that did this provided all the reasons listed here.

Then it went bankrupt not too long thereafter.
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Old 10-15-2016, 07:50 AM
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It "could" be simply to increase ownership and provide a more liquid market for the stock. Perhaps some of the senior management want to monetize their equity in the bank? As I and others already stated, it is usually done because the price has dropped significantly, but if it has always been low, there could be other reasons. You may find the answer in the annual report or simply call investor relations.
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Old 10-15-2016, 08:04 AM
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Stock is doomed.
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Old 10-15-2016, 10:56 AM
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Worked out okay for CIM last year. But that's the only time I've seen it turnout okay...
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