How Reverse Stock Splits Are Implemented

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OMG! My Stock Price is Dropping!!! Who cares?

empireavenue.com/PIRILLO

I had to take this screen shot to better combat a few of your (appreciated, but misdirected) concerns over my current stock price on Empire Avenue.

A stock price (alone) is not an indication of its overall value.

Remember when I said that any stock with a 1.0% share (or higher) was a keeper? Well, what do you think a stock with a 2.0% share (or higher) is?

You would have to find two separate stocks selling at less than 83.50 per share and offering more than 245,000 dividends with a 1.02% share return (this is NOT ROI) to gain as much in return compared to what "PIRILLO" drives. If you find those two stocks, let me know – because they’d make great investments today.

go.tagjag.com/empiretips

How Reverse Stock Splits Are Implemented

The reverse stock split is less popular than the regular stock split, but savvy investors are familiar with this investment strategy that firms implement to increase their share price.

In regular stock splits, a firm intentionally issues additional shares to distribute to its shareholders at a lower price. With stock splits that occur periodically, small investors can acquire expensive shares of large corporations that would, otherwise, be beyond their budget.

In regular stock splits, one share increases the number of shares by being split into multiple shares. In reverse stock split, one share decreases the number of shares by being split into fewer shares. Hence, with reverse stock split, firms reduce the number of shares outstanding and increase their share price without increasing or decreasing their market value. In effect, the price is adjusted to the ratio of the reverse split. For instance, if the share price is before the 10/1 reverse split, each share will have a value of after the reverse split. An investors that holds ,000 shares of per share before the split will hold 0 shares of per share after the split. Therefore, the total market value will be ,000 before and after the reverse stock split.

The reverse stock split is implemented when the price of a stock has declined sharply and a firm needs to avoid being delisted for violation of the minimum-price rules of per share on NASDAQ (www.nasdaq.com/) or New York Stock Exchange (www.nyse.com/). The most recent example of firm that used reverse stock split to avoid being delisted is American International Group (AIG) that did a reverse stock split of 1/20 in 2009. Today (as of 06/04/2010), its shares trade for ; before the reverse split they traded for less than .

Besides meeting listing requirements on major stock exchanges, firms have other reasons to do reverse stock splits. One reason is that demand is limited for particular stocks that trade for under . This makes them unattractive to institutional investors and mutual funds that have set a minimum price for stocks in which they are willing to invest. Yet, with a reverse stock split of 5/1, a share that trades for will automatically trade for , which will make it eligible for purchase by institutional investors and mutual funds. Moreover, the price level is widely regarded by investors as the border between companies that issue penny stocks and companies that issue more profitable stocks. In this case, it is a matter of how investors perceive a firm whose shares trade under , given that the reverse stock split will have no effect on the firm’s market value.

Another reason to implement a reverse stock split is to reduce the number of shares outstanding. As a result of the unrestrained behavior of the market bubble days in the 1990s, many firms have created too many shares outstanding to support stock option and engage in mergers and acquisitions. A reverse stock split is a good strategy to reduce the number of shares outstanding, without affecting the firm’s market value.

Finally, many stocks are components of a major stock index and many exchange-traded funds (ETFs) hold the stocks of the index they track. Therefore, if a stock falls too low, it may need to be replaced on the index, which will cause all the funds tracking the stock selling their shares, putting further downward pressure on the share price. A reverse stock split can ensure that the stock has the potential to remain on the index.

Sources:

http://www.investopedia.com/terms/r/reversesplit.asp

http://www.ehow.com/about_6558415_define-reverse-stock-split.html

http://www.ehow.com/facts_5797970_reverse-split-stocks_.html

http://www.ehow.com/about_6399520_result-reverse-stock-split_.html

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Stocks & Shares question by recycle b: What stocks will be a wise investment to hold long term?
I am sick and tired of seeing my stock portfolio sometimes decreasing a few thousand dollars in one day. I am always looking for new stock investments. Which large corporate stocks are still available that have always made a profit and still have profit growth, have a low PE ratio, pay a dividend that will not be cut, have little or no debt on their balance sheet, and will be safe in this bad economy that we are facing. Provide the ticker symbols of these stocks and the reasons why the stock of these companies should be purchased.

Stocks & Shares best answer:

Answer by Stockwillrise
Unfortunately you are not going to like my anwser to your question.
Long term investing=going broke in your account
short term investing=lots of profits in your account
I bought SHLD yesterday at 27.25 and sold today at 30.61
Thats a 3.36 profit per share on the 3000 shares i bought.
If I were to hold SHLD for the long term I would lose money.
Her is my advice buy CME ONLY if the stock drops tommorrow below
151 buy 700 shares and Monday if it drops below 146 buy 1400 shares
Sell for profit once the stock reaches back to 150-151 range on tuesday.
Send me an e-mail if u need to walk u through the trade.
DO NOT try to hold CME for the long term or u will lose.
This is all technical price movement.