What Is a Reverse Stock Split? These Examples Can Help

By lowering the share price, the company can make its stock more attractive, and accessible to more investors. A reverse stock split is an action by a publicly traded company to reduce its number of existing shares, leading to an increase in the price how to buy altcoins per share. A reverse stock split can be a great way to increase the value of your stock. It works by having a company reduces the number of outstanding shares, making each share worth more money so investors are encouraged to purchase them.

Reverse stock splits and stock splits do not reflect a change in the intrinsic value of the company—only the share price, which adjusts. But the market cap of the company is not directly affected by a reverse split or split. In a reverse stock split, each of a company’s outstanding shares is converted to a fraction of a share. For example, in a 1-to-10 reverse split, every 10 shares would be merged into one share. If you own 100 shares of a company’s stock, and the company declares a reverse stock split, afterward you would have 10 shares. The reverse stock split will reduce the number of shares of XWELL’s common stock currently outstanding from approximately 83.5 million shares to approximately 4.17 million shares.

XWELL’s transfer agent, Equiniti Trust Company, LLC (“EQ”), is acting as the exchange agent for the reverse stock split. American Stock Transfer & Trust Company, regarding their share ownership following the reverse stock split and any payments in cash in lieu of fractional shares, if applicable. Registered holders are encouraged to contact EQ and beneficial holders are encouraged to contact their bank, broker or other nominee with any questions. If Ebet is removed from the Nasdaq exchange, the stock will be less accessible to traders. The stock would have to be purchased through an over-the-counter exchange, and it could also be removed from exchange-traded funds (ETFs). With today’s share price collapse, another reverse stock split may be needed to keep the stock on the Nasdaq.

It helps improve perception regarding a company before a turnaround actually sets in. A regular stock split sends a confident signal to investors that the stock reflects positive fundamentals and has reached levels that have become unaffordable for retail investors. When an investor shorts a stock, they are borrowing the shares with the agreement that they will return them at some point in the future. For example, if an investor shorts 100 shares of XYZ Corp. at $25, they will be required to return 100 shares of XYZ to the lender at some point in the future.

Additionally, the liquidity of the stock may also take a toll with the number of shares getting reduced in the open market. If a company’s share price is too low, it’s possible investors may steer clear of the stock out of fear that it’s a bad buy; there may be a perception that the low price reflects a struggling or unproven company. To fight this problem, a company may use a reverse stock split to increase its share price. During a reverse stock split, the company’s market capitalization doesn’t change, and neither does the total value of your shares.

The best bet is to evaluate the particular situation and determine if it makes good sense for you to hold. Some companies have survived and thrived after going through a rough patch that led to a reverse stock split. They tend to be well-known companies that have been underperforming recently and that want to raise their profiles. If a company’s share price has fallen steeply, it may fail to meet a minimum stock price, which is one of several criteria required for being listed on a major exchange such as the New York Stock Exchange (NYSE). Second, the higher number of shares outstanding can result in greater liquidity for the stock, which facilitates trading and may narrow the bid-ask spread.

To Prevent Being Delisted

However, as the number of available shares change, the market capitalization of the company remains the same. The MarketBeat Stock Split Calculator is a self-service tool that lets you calculate how a stock split will affect the shares you currently hold. It can also help inform your decision on whether you want to take a new position in the stock before or after the stock split. A stock split is when a company’s board of directors issues more shares of stock to its current shareholders without diluting the value of their stakes. A stock split increases the number of shares outstanding and lowers the individual value of each share. While the number of shares outstanding change, the overall market capitalization of the company and the value of each shareholder’s stake remains the same.

  • A stock split can make the shares seem more affordable, even though the underlying value of the company has not changed.
  • Many of the stocks in those sectors are considered speculative in the best of times.
  • Some companies have survived and thrived after going through a rough patch that led to a reverse stock split.

Companies may choose to do a reversed stock split for several reasons. The primary reason is often that they want to increase their share price in order to appear more attractive for investors or institutions looking to purchase large amounts of their stock. By doing a reverse stock split and reducing those 1 million shares down to 100 thousand ($10 per share), there will be less chance of driving up prices when buying and selling large amounts of stock.

Pros and cons of a reverse stock split

After a company’s board approves the decision to reverse split, it notifies shareholders of the decision either through a press release or a filing on Form 8-K, 10-Q or 10-K. The company has to file a proxy statement on Schedule 14A if shareholders need to approve the action. If the reverse split will result in the company going private, it requires atfx overview a Schedule 13E-3 filing. If a company faces a potential delisting and/or is doing a reverse split, it’s likely the business is struggling. Unless there’s a compelling reason to think the stock may bounce back, these are stocks long-term investors may want to consider avoiding. When a company splits its shares, the value of the shares also splits.

Reasons To Invest In PayPal Stock

Ebet published a press release after the market closed on Friday, announcing that it was moving ahead with a reverse stock split. The move, which had not been previously announced, caught investors by surprise and is spurring a surge in bearish sentiment. A company’s board of directors can choose to split the stock by any ratio.

Impact of a Reverse Stock Split on Market Capitalization

It has no immediate effect on the value of the stock to the investor, either. When a reverse stock split is executed, a company cancels its current outstanding stock and distributes new shares to its shareholders in proportion to the number of shares they owned before the reverse split. Investors’ holdings are not directly affected by a reverse stock split, but resulting fluctuations in the share price that could follow may cause investors to lose money.

The forward stock split then increases the number of shares owned by the remaining shareholders. Most investors are more comfortable purchasing, say, 100 shares of a $10 stock as opposed to 1 share of a $1,000 stock. So when the share price has risen substantially, many public companies end up declaring a stock split to reduce it. Although the number of shares outstanding increases in a stock split, the total dollar value of the shares remains the same compared with pre-split amounts, because the split does not make the company more valuable. The most common reason is that the company believes its shares are overpriced. For example, if the stock is trading at levels far above other stocks in its sector, it may become less attractive to investors.

What Happens if I Own Shares That Undergo a Stock Split?

NerdWallet does not and cannot guarantee the accuracy or applicability of any information in regard to your individual circumstances. Examples are hypothetical, and we encourage you to seek personalized advice from qualified professionals regarding specific investment issues. Our estimates are based on past market performance, and past performance is not a guarantee of future performance. J.B. Maverick is an active trader, commodity futures broker, and stock market analyst 17+ years of experience, in addition to 10+ years of experience as a finance writer and book editor. For every 1 share(s) previously owned, the shareholder will own 2 share(s) after this split.

What Is a Stock Split?

For those who aren’t already shareholders, though, a stock split can provide motivation to buy. For example, if you couldn’t afford a share of Tesla before its recent stock split, you might be able to get one now. All corporate names and market data shown herein are intended for illustrative best day trading computer setup purposes only and are not a recommendation, offer to sell, or a solicitation of an offer to buy any security. In addition, the market data shown is historical in nature and should not be relied upon for analysis. Please use current data when researching any illustrated securities.

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