RE:RE:Trying to understand the affects of a reverse split pierrelebel wrote:
Let's take it one step at the time. I expect the reverse split will be 1:15 but we will use your example of 1:20
Today you own 5,000 shares valued at $1.09 each for a total of $5,450
After a 1:20 reverse split, all other things being equal, you would own 250 shares (5,000 / 20) at a price of $21.80 each for a total of $5,450
The value of your holdings has not changed. The same applies to all stock split or reverse split.
Why do it?
When the trading value of a share gets high (let's say $100), it is usual for Canadian banks for example to split their shares 2:1 so the shares are now trading at $50 (TD Bank did that a few years ago). There is a perception that investors would find it easier to buy a standard lot of 100 shares at $50 ($5,000) than at $100 ($10.000)
In a reverse split, it is the reverse thinking. With shares trading below $1, some managements may feel that investors will not be attracted to their stock and think that a higher price between $10 and $25 may attract more investors. It is also a fact that some institutions (pension funds, etc...) may not invest in "penny stocks"; so they may be attracted to the higher price.
"right now we seen a .19 increase"
Today was exceptional and seldom seen (21.1% gain in one day)
If the split had already happened, the shares would also have gone up by the same 21.1%
A split or reverse split do not change the total value of the capitalization of a company.
Excellent explaination. Also keep in mind that any earnings that you are in the green for will follow you to the new share price.
Generally a reverse split can be bad for a company. Some would say that dual ownership would definitely qualify. One of the major uses for it is to use as a tool to decrease volume. In bombardiers case the volume is nuts. It simply makes it much more risky of a stock to day trade in . And sometimes can weed out the minute investors that drive the volume.
Sometimes it causes short traders to come in as there is more of a bottom to the stock and it is new to be realized.
IMO, if you get your vote. I would humbly suggest that you take a good look at the volume, the recent happenings with the parasite short traders and make an informed decision. Reverses have there pro's and cons.