Enerdynamic Hybrid Technologies Corp. EDYYF

Difference between split and reverse split..

[kodiakup]

 


- I have already lived it many times .. and for all those who do not understand an r / s .. sorry for you .. I hope the best for you all .. have is here to win and not lose.



-At less than 25: 1 I don't see what an r / s would give below..

- The r/s goal is to get out of the penny stock

- It takes a lot of good news to keep the s / p

Reverse split: a sword in the water Before even starting my column, I must tell you that I am writing this column following the one published by Benard Mooney on LesAffaires.com (article here). So what is a reverse split? A dictionary would tell you the reverse of a split. The split, meanwhile, constitutes a division of shares. For example, a 2: 1 split means that we will create 2 actions with each existing action. So if you had 100 stocks at $ 50, you would end up with 200 stocks at $ 25. A reverse split does the opposite: a 1: 5 causes 5 stocks at $ 10 to be paired together to create a single new stock at $ 50. There is no value creation made by this corporate action. But then why make splits (reverse splits)? What good if it doesn't change anything?!? There are 2 answers to this question. First, the price of the title is a marketing tool. Great-West Life (TSX: GWO) has used the split several times in the past to keep the stock price between $ 20 and $ 40. This marketing choice is made to promote a type of clientele in the shareholding. Conversely, Berkshire Hathaway (NYSE: BRK.A) has never used this tool, so class A ends up at nearly $ 80,000 per share. I cannot buy myself a BRK.A share, but I can buy GWO shares. The same principle applies for the reverse split. If the price falls below $ 1, you become classified as a penny stock and all portfolio managers MUST sell the position (normally, it will be sold before going below $ 1). To keep this clientele and avoid being recognized as a penny stock, we will consolidate shares to have a higher price. Nortel used this strategy 2-3 years ago by doing a 1:10 reverse. Note that the NYSE discounts any company whose stock is below $ 1 for a certain period of time. The reverse split will therefore make it possible to avoid the discount. The second reason for using splits is the message to the markets. Like all actions on the part of the company, an implied (and sometimes serious) message is given to the markets. When do we do a split? When the title is greater than our target customers. So inevitably the title has risen and increased in value. So a split sends a quality message. Conversely, a reverse split occurs when the stock is so low that we risk becoming a penny stock (and being discounted from the NYSE). The message sent to the market is very straightforward: the stock has fallen very low (outside our price zone) and we don't believe this is a temporary drop. In other words, the company has performed poorly lately and we do not see better days in the near future. Mr. Mooney referred to a study in his post that showed that reverse-split companies underperformed the market in subsequent years. There are also several studies which confirm that on average, splits perform better than the market in the following years, but the yield gap (split - market) is lower than during reverse splits (market - reverse).