ALEAF By now the current shareholders should have received the Proxy Statements and additional information for the special meeting on December 6th 2018. I have and voted. But for those shareholders that may still be sitting on the fence I offer some food for thought:
HARD WORK AND SOUND BUSINESS PRACTICES AND FUNDAMENTALS COUPLED WITH A UNIQUE BUSINESS PLAN WILL DO MORE FOR CORPORATE VALUES THAN THE “SMOKE SCREEN" of a stock split that suggest there are underlying significant financial issues that the corporation is looking to cover up with fabricated price per share (PPS) tricks.
What assurances does management offer that would curtail the suggested corporate action (reverse split) is viewed by the investment community as a “fake price bra” that lends itself to negative speculation?
Perhaps management should utilize the net and review the attitude of reputable Medias that agree that the single most beneficial result of a reverse stock split is to inflate the PPS to maintain or comply with big board price listing requirements. PERIOD!!!
In other words it is the easy way out to increase the PPS that will ultimately result in a continual loss in PPS due to manipulation and stock shorters that can see the “blood in the water” and look to devour any attempt to withstand their persistence in causing a company’s stock price to plummet.
When to Use Caution (The Balance)
You should watch out for one type of split as a possible danger signal, and that’s the reverse split.
In a reverse split, the company reduces the number of outstanding shares and the per share price rises accordingly.
For example, a company might execute a 1-for-2 reverse stock split, which means for every two shares you own, you would now own one and the per share price doubles.
A reverse stock split is often used to prop up a stock’s price since the price rises on the split. Often a company will do a reverse split to keep the stock price from falling below the minimum required by the stock exchange where it is listed.
It is a sign that something is wrong if a company can't keep its stock price above the exchange’s minimum listing price and caution is advised.
(The Motley Fool)
Be smart about stocks
It's important to realize, though, that these stocks aren't typical. Past research has shown that most stocks underperform the market following a reverse split. That isn't surprising. After all, a company that sees its stock fall so far usually has to have gone through a tough period. The split does nothing to fix any internal problems the company has, and only a few manage to solve their difficulties and achieve permanent growth trajectories. Those few winners can't make up for the weight from their failing counterparts.
Moreover, companies that do reverse splits on their stocks make themselves a target for bearish speculators. Because of their poor reputation, reverse splits make many investors flee stocks, even if their fundamentals improve. That can give smart investors great opportunities, but they're few and far between.
Companies that need reverse splits typically start with a big disadvantage. Only very rarely can those companies give investors the huge returns they want in top investments.
(Cabot Wealth)
However—in reality—since the motivation behind most reverse splits is generally looked at unfavorably by the investment community, these splits often immediately create downward pressure on a stock, whereas a forward split, more often than not, pushes a stock’s price higher in the near term.
Charles Kaplan, president of the investment consulting firm Equity Analytics, told Bankrate.com,
"It is usually a very negative sign when a company reverse splits their stocks." But how the market reacts often depends on what else the company is doing to reverse its fortunes. If it simply declares the reverse split and goes on with business as usual, investors may see the split as nothing more than a smoke screen, and the price may go right back to falling as they sell their shares. But if the split is accompanied by serious changes in management, structure or strategy, investors may give the company more time to right the ship.
Inflating The Share Price
So, a company may undertake a reverse stock split to artificially increase the share price by decreasing the number of shares available. A 1-for-5 reverse split for example will reduce the number of shares available by a factor of 5.
In this scenario, the company value does not change but the stock price is going to jump five fold. So a $1 stock is now going to trade for $5. If a company completes a reverse split leaving an investor holding fewer than one of the new shares, the investor simply receives a cash payment.
Since a reverse stock split is usually undertaken to fulfil listing requirements, there is a stigma attached to completing the action and it highlights how the stock has underperformed.
As a result, a reverse split stock is often looked upon negatively by investors and reverse split stocks will often fall in value after the event has taken place.
Bottom line here....don't be fooled and ask yourself if you have ever seen a reverse stock split that ever was a benefit to its shareholders.....EXACTLY
