Reverse Stock Split
When a company consolidates shares, reducing the count and raising the price per share proportionally. Often a warning sign.
A reverse stock split is the opposite of a stock split: the company reduces shares outstanding and increases the price per share by the same ratio. In a 1-for-10 reverse split, 10 old shares become 1 new share at 10× the old price. Market cap is unchanged.
Reverse splits are most often done to avoid delisting — exchanges require a minimum share price (typically $1.00 on Nasdaq/NYSE). A stock falling below $1 for 30+ trading days gets a compliance notice; a reverse split is the quick fix.
Reverse splits are almost universally bearish signals. The underlying business problems that drove the share price down are not solved by the accounting maneuver. Most stocks continue declining after a reverse split.
Example
A stock is trading at $0.50. The company executes a 1-for-20 reverse split. Shareholders with 1,000 shares at $0.50 ($500) end up with 50 shares at $10 ($500). The stock was at risk of delisting; now it has a cushion — but the fundamental issues remain.
Related Terms
Halt (LULD)
A mandatory pause in trading when a stock's price moves too far, too fast. LULD bands are set as a percentage of the prior reference price.
AdvancedNYSE
The world's largest stock exchange by market capitalization, located at 11 Wall Street in New York City.
BeginnerShares Outstanding
The total number of a company's shares currently held by all shareholders, including insiders and institutions.
BeginnerStock Split
When a company divides each existing share into multiple new shares, lowering the price per share while total value stays the same.
Beginner