Do reverse stock splits help or hurt the small-cap investor?
Why would a company undergo a reverse stock split? There are a number of reasons why a company would decide to initiate a reverse split. Some of the most often discussed are:
Keeping the share price above $1/share in order to maintain or gain compliance with NYSE or NASDAQ listing requirements.
Attempting to extend the life of a slipping stock. If a stock sees little in its future, a reverse split can maintain a stock's reputation at face value.
Raising the stock's status above the penny stock mark. Some companies have a fear of being labeled a penny stock, and some big investors have a fear keeping them from investing in lower-priced issues.
So what does this mean? Two of the three reasons listed above are efforts of desperation. A stock that fails to raise its share price above $1/share without a reverse split may not be such a great investment.
This is the part I do not understand, why would TRTC think they cannot raise the share price naturally? Unless acquisitions and growth are projected to cause to much dilution maybe??
The third reason listed has some validity to it. A company that trades above $5/share is far more likely to see increased fund ownership and brokerage coverage. However, once again, keep in mind that many of these funds and analysts are looking for more than just a stock's price. They also consider a company's financial background and stability.
Can a reverse stock split be beneficial? Yes, but that is usually the exception.
Keep in mind that sellers of federally illegal substances have quite a hurtle to get listed on the Nasdaq, to date none have....
