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mowens's avatar

What is a One-for-Eight Reverse Stock Split?

Asked by mowens (8379points) February 20th, 2010

I had 500 shares of ASTM (stock) They said they did a one for 8 reverse stock split. What’s up with that? It is now called ASTMD.

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10 Answers

laureth's avatar

If you divide your 500 shares by 8, that is now how many share you have (62.5). If the stock had gotten too cheap, this is a way to make it more valuable. (For example, instead of 8 shares worth a dollar each, you now have one share worth $8.)

CyanoticWasp's avatar

Most stock splits occur as the stock increases in value (price) making it seem more expensive on a per-share basis. So if you bought Microsoft many years ago at, say $50 per share and over the years the company has increased in value (taking the stock along with it) that share could be worth $1000s now. That price deters some investors, who only look at “share price” (and like to buy in round lots of 100s of shares at a time). So along the way Microsoft stock has “split” many times in the “normal” way, such as 2:1, 3:1, 4:1, etc.

In those instances where the shares might split “2 for 1”, “3 for 1” and so forth, you merely divide the per share price of the stock by 2, 3, or 4 (or whatever the split ratio is) and multiply the number of shares owned by the same number. The net effect to the investor is zero. However, the market often perceives this as a “buying opportunity”, since the shares appear to be cheaper now.

On the other hand… as a stock price declines in value over time, companies do the opposite in order to keep the stock from appearing to be “too cheap”. (And actually being “too cheap” for many mutual fund managers to consider including it in their “basket” of stocks.) So they do this “reverse split” in order to “keep up appearances”.

To qualify what @laureth said, this gives the “appearance” of preserving value in the stock; the net effect to you as an investor is nil. (But if you hold stock certificates in hand—which few people do any more—then you will want to exchange them for the newly revalued shares. If your account is with a broker who holds the certificates for you “in street name”, which nearly everyone does these days, then they handle all of that as part of their regular business.)

Cruiser's avatar

@laureth nailed it…your investment “value” remains intact only the name and number of shares has changed.

mowens's avatar

Ah, why dont they just call it an 8 way split? I would have understood that. The reverse part through me for a loop. :)

laureth's avatar

A “split” is when 1 becomes 8. A “reverse split” is 8 becoming 1.

DrC's avatar

It means you’re screwed because your company is trying to increase it’s per share price so that it can stay listed. For every eight shares you had before, you now have one share worth eight times as much (dollar value stays the same).

thriftymaid's avatar

Yesterday you had eight shares; today you have 1. Usually the value is about the same. Not always a bad sign, but usually it is.

RomanExpert's avatar

The opposite of an Eight-for-One Stock Split. So, your 500 shares are now reduced to 62.5 shares but the shares are worth eight times as much per share for an equal dollar value. Ex: 500 shares @ $1 = $500
62.5 shares @ $8 = $500

mowens's avatar

ive made money of this stock, believe it or not.

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