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When does a reverse stock split benefit stockholders?

post #1 of 14
Thread Starter 
I am still learning and would like someone to explain, is a reverse stock split always bad for the stockholder. As example Rite Aid is having one in the near future. I own 20,000 shares of Rite Aid and was wondering what that would do to my position in Rite Aid.
post #2 of 14
Quote:
Originally Posted by shakattack View Post
I am still learning and would like someone to explain, is a reverse stock split always bad for the stockholder. As example Rite Aid is having one in the near future. I own 20,000 shares of Rite Aid and was wondering what that would do to my position in Rite Aid.
THe number of shares you own will be divided by the RS but the price will be increased as well by that same factor. Most of the time after the split the price goes down to where it was before, at least in my experience.


1:20 RS you'll have 20 times less shares but the price will increase by 20X
post #3 of 14
Thread Starter 
So it about evens out?
post #4 of 14
Only at first but often it falls back down to where it was and since you have way less shares..
post #5 of 14
RS is almost always bad for stockholders
post #6 of 14
R/S is only good when it's necessary to uplist, or when there is a merger/acquisition taking place IMO.

Uplisting: If a stock like ATARI has dropped under $5 and it's going to be de-listed, or was de-listed... they need to a R/S to get the price over $5 again. That's a BAD uplisting.

If a stock wants to uplist for the first time - say it's an OTC stock and they are making money and want to get on the big boards, that can be good. If they have momentum and are growing, not suffering like Atari was.

OR - sometimes a shell, a stinky pinky will R/S, and then insert new assets into it, and have a big badass promotion and run. That can be very good, but is dangerous.

In general yes I agree a R/S is about the worst thing that can happen and you should usually run away. Especially if u are a newbie!
post #7 of 14
Quote:
Originally Posted by binks View Post
1:20 RS you'll have 20 times less shares but the price will increase by 20X

Not always true. This is in theory only...a stock is ONLY worth it's last sale. A 20:1 RS usually does not give a 20:1 price increase sadly. There is no organization that forces the open on the next day to be 20:1 from the previous close. Raven Moon is a prime example of this technique.

Quote:
Originally Posted by shakattack View Post
So it about evens out?
It does not even out unless it is a realy stock worth a damn. Like Shamantics said, if an OTC uplists for the first time, then you may get the correct ratio, but then again, they may not pull a 20:1 RS. They may only need a 2:1 for example. I think the lower the ratio of the RS, the more likely that it will retain the value...this is a hunch, I have no data or facts to back this up.
post #8 of 14
If the AS (# of authorized shares) is R/Sed along with the OS (# of outstanding shares) it shouldn't make any difference. The problem lies in if the AS remains the same, then you essentially have been diluted in an RS. A stinky pinky will generally max out the AS , do a reverse and then max out the AS again.

Note:
If the company is a Florida Corporation , the OS gets the same treatment as the AS in a split of any kind.

WNSH.PK is splitting this Monday at a hair raising 1:7500 reverse split.
But it's a Florida corporation coming out of a shell and needs the price and share structure to attract mergers.
post #9 of 14
Don't go for reserve shares. Wait for the market movement and do your trades.
post #10 of 14
man shak.....
first nexm now rad..what all do you own?... if i would of known you owned this i may of NOT bought into em ...kidding...
m/o: rite aid isn't going bankrupt...
i think that buyout of Echerts..(? didn't look at name) has brought this down
they are still building new rite aids in my area and are usually busy....
i think they'll rebound or get bought out even if a reverse does happen....
if they go say 20/1 means you have 1000 share at $10.00 a share instead of
20,000 at .50 a share.....
20/1 is kinda high....i say 5/1 maybe 10/1 but i read they were waving minimum 1.00 to stay listed rule till jan sometime....either way GOOD LUCK
post #11 of 14
Thread Starter 
Laughing-Last, I think I am getting better with experience. I have picked some pretty bad ones in the past and have lost ALOT of money. The last one I bought was LVLT and made a gain of $2,000. I now own 20,000 shares of RAD. I think this will be a very good long term hold.
post #12 of 14
Quote:
Originally Posted by shakattack View Post
Laughing-Last, I think I am getting better with experience. I have picked some pretty bad ones in the past and have lost ALOT of money. The last one I bought was LVLT and made a gain of $2,000. I now own 20,000 shares of RAD. I think this will be a very good long term hold.
RAD is quite possibly the worst LT play you can put your money in. No CASH. HUGGGGGE debt. If they don't get merge with somebody, chapter 12 baby!

All IMO of course. But numbers don't lie. Just look at the balance sheet. Stocks that are in the pennies are not on sale....they're just big POS's.
post #13 of 14
Thread Starter 
We will see. I just hope it jumps back up to $1.00.
post #14 of 14
A reverse split does not devalue the stock at all. You will own the same percentage of the company, you just now have bigger pieces of the pie, instead of 20x the bite size morsels.

The motive behind the reverse split is very important, in RAD's case, it is to satisfy listing requirements. It has fallen so low that nasdaq has delisted it.

The future of RAD will depend on its fundamentals and ability to become profitable.

Being under 5$ makes it harder to short, and hopefully shorts will cover before the reverse split because they want to lock profit and avoid the hassle of the transition.

I can say though that 99.9999% of penny stock reverse splits are bad, especially if the stock has been to .0001 in the past.
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