Companies will typically execute a reverse stock split for one of the following three reasons:
1. Increase their share price to avoid being delisted from an exchange. The exchange GNPX is trading on, NASDAQ CM (Capital Markets), rule is $3/share. A few months ago GNPX was in violation of this rule, but corrected (Up to $7/share) and was released from the warning).
2. Increase their share price to avoid being removed from a stock index
3. Increase their share price to avoid the “low-quality” stigma that is associated with penny stocks. Some investors and institutions have a policy to not buy stocks under $5/share. To attract these investors a company may reverse split. These splits are generally in the 1-2 to 1-5 range and can be quite successful. However, a RS by a company that has billions of shares and doing a RS of 1-1000 to 1-5000 is rarely successful in attracting these investors and generally do the RS an attempt to save a dying company. The higher price makes it easier for the officers to sell their shares, so their thinking usually goes.
"The Cabot Wealth Network", a financial research firm that specializes in covering companies in trouble, says: "There has been a flurry of reverse stock splits of late. Are they good for investors? Traditionally no. But there are a few exceptions." Rather than attracting more investors, the RS actually reduces the number of investors and only when well planned well ahead of the decision, will rarely attract the quality investors being aimed at.
One of Chicken Little's Short Seller's favorite warnings, after "The Sky is Falling!" is "This stock is planning a Reverse Split". Since the RS has been a killer of retail investors, some inexperienced RI's will run for the hills and sell-off at the very mention of a RS, and Chicken Little is playing on these fears.
It appears to me that there is no reason for GNPX to even think about doing a reverse split. There is no pressure from regulators to increase its price, and no need to attract investors, whales or institutions. The company, as well as its investors, know that coming news will explode the price well above where it is at present. And, it has arranged for sufficient funds to complete its research efforts.
As for one "being long" and truly believing that a Reverse Split was a sure thing, something is wrong with this thinking. Even if such a RS is positive and less than 1-5, and I truly believed it was going to happen, I would sell and await the action, then buy back in as the new price settles down (as they usually do initially).
AI
