Share ConsolidationInvestors know full well that Sokoman is a junior exploration company listed on the venture exchange. It is understood share prices are lower because risk is high but investors are willing to take that risk because the reward for taking that risk can also be much higher than investing in safer blue chip stocks on the big board or money market instruments that give a small but steady rate of return.
A higher share price in and of itself is not going to boost the image especially of an exploration company. A mining exploration company's image is primarily driven by its performance and prospect of discovery of valuable ore bodies.
A reverse stock split for a junior exploraton company gives a negative perception.
Sokoman has a strong prospect of success because of the shallow high grade gold assay results it has already returned at Moosehead and recently at Grey River, because it is conducting a very large drill program of 100,000 meters, because its prospects are validated by the 26.1 % stake Eric Sprott has taken in Sokoman, because of its large land package and prospective projects, because of its joint venture with Benton, because it recently discovered a large high grade lithium deposit at Golden Hope, and because of the experienced managment and team at Sokoman.
From Seeking Alpha:
Pros and Cons of a Reverse Split
Pros of a Reverse Stock Split
- Boost image: The primary purpose of a stock split is to increase the share price, which is often done to gain or maintain favor among influential investors.
- Prevent stock exchange delisting: A reverse stock split can be done to increase the share price to meet minimum price requirements of the stock exchanges.
Cons of a Reverse Stock Split
- Loss of liquidity: Since a reverse split reduces the number of shares available in the market, the split can harm liquidity, which can then negatively impact share price.
- Negative perception: Although a reverse stock split can help to boost a stock's image among investors, reverse splits are often received as a negative sign that the company is struggling.
Bottom Line
A reverse stock split reduces the number of a company's outstanding shares and proportionally increases the share price. While a higher share price can help to boost a company's image, reverse splits are generally received by investors as a potential sign of fundamental weakness.