reverse stock split
A corporate action that reduces the number of outstanding shares by combining multiple shares into one, increasing the share price proportionally.
Example
“The struggling company did a 1-for-10 reverse stock split, combining 10 shares into 1 to avoid NYSE delisting below $1.”
Memory Tip
REVERSE split = fewer shares, higher price. Often a red flag — company consolidating to avoid delisting.
Why It Matters
Reverse stock splits can affect your investment value and trading experience. If you own shares in a company that undergoes a reverse split, your share count decreases but the per-share price increases proportionally, meaning your total investment value remains the same. Understanding this helps you avoid panic selling when you see your share count drop.
Common Misconception
Many investors mistakenly believe a reverse stock split makes them richer by increasing the share price. In reality, the total value of your investment does not change because the number of shares decreases proportionally, so a 1-for-10 reverse split that increases price from 50 cents to 5 dollars leaves your overall holdings worth exactly the same.
In Practice
If you own 1000 shares of a company trading at 2 dollars per share, your investment is worth 2000 dollars. If the company executes a 1-for-5 reverse stock split, you would then own 200 shares at 10 dollars per share, still worth 2000 dollars. Companies often do this when their stock price falls too low to maintain listing standards on major exchanges.
Etymology
REVERSE (opposite direction) STOCK SPLIT. The opposite of a regular split — fewer shares at a higher price.
Common Misspellings
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