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Could someone please explain to this rookie what a reverse split is, and the best course of action to take on one if confronted with it,thank you----Todd
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A split is when one of your shares become two shares. Companies would usually do this when the price of a stock has gone up enough that they want to lower price so that it looks more appealing to people. Note that this does not change the actual value of the company. For example, if a company's stock is worth 100$/share and there are 1 million shares outstanding, the company is worth $100 million. A 2:1 split would make each 100$ share now worth 50$. Thus 2million shares * 50$ = $100 million.
A reverse split is the opposite of this. Rather than lower the value of the stock, a reverse split increases it. So if shares were trading at .01, a 1:100 split means that every 100 shares of stock you had at .01 is now worth 1.00. The market value of the company remains the same. Companies usually do this to fulfill rules of Nasdaq/NYSE/AMEX.
There really isnt much you could do about it.. 1) YOu could sell the stock if you think the stock will go down 2) you could hold on to it if you think it will go up
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Bonez, Thanks for clarification, bottom line on either kind of split if i understood corectly is value remains the same at time of split, shares will change.Thank you ----Todd
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thats correct. for all intents and purposes, the value of the company does not change.
although there might be increased volatility in the stock depending on the circumstances. (ie: if a stock got cheaper, more people might be tempted to buy it.. or if a stock underwent a reverse split because the company wanted to remain on certain exchanges.. investors, having more faith in the company, might buy more of it) these are just hypothetical of course.
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