Fronk, I believe what William says, but there are good reasons to have a consolidation or R/S.
I just read this regarding Sandstrom Gold.
Several readers have asked about "consolidation" in Sandstorm Gold shares - this is not, mind you, the chart-speak kind of "consolidation," which means the stock is moving down, but the actual consolidation of a reverse split. So since Sandstorm Gold (SSL in Canada, SNDXF on the pink sheets) is my largest holding and I know that a large number of Irregulars own and follow the stock, I thought we'd spend our Good FridayFriday File getting an update on Sandstorm.
You can see why they used the term "share consolidation" - the term "reverse split" has terrible connotations, since it's usually used by companies whose share price has dropped under a dollar and which are in danger of being delisted from the stock exchange, or penny stocks hoping to wring a bit more cash from their weary investors by bringing the price up to make it look like the company is still "real."
But that's not the case here - this is the "good" kind of consolidation, they are trying to bring Sandstorm Gold's trading metrics (mostly the share price) in line with the requirements of the major exchanges, which would give them the possibility of uplisting to the main exchange in Toronto (instead of the Venture exchange, where they now trade and where they rub shoulders with teensy, sub-dollar penny stocks) and, perhaps more importantly, getting an AMEX listing in the US. To get those kind of major market listings, they effectively need to have the share price above five dollars.
And though Sandstorm Gold has been growing nicely, and I expect will continue to grow nicely, it's not going to get to five dollars this year unless they consolidate the share count. So they issued a notice yesterday that they'll be asking for shareholder approval to consolidate the shares, giving shareholders one new share for every several old shares that they now own (they say the ratio may be as many as 5:1, but the actual number will be up to the board).
So although that means you've probably (if you follow Sandstorm closely) seen a bit of panic about this from folks who enjoy trading low-priced stocks, or who are worried about the warrants, or who just think "reverse split" or "consolidation" are four-letter words, the actual impact should be nil in a fundamental sense, and potentially quite positive if it raises Sandstorm's profile with a listing in New York. When a company is flailing and trying to survive and avoid being delisted, a reverse split is often a cry for help; when they're succeeding and outgrowing the venture exchange (or the OTC market in the US, or whatever), it's a sign of "growing up" and it can be very positive.
Sandstorm Gold is not a tiny company, and they are big enough for a major market listing if they choose to go for it. The stock has a market cap of about $600 million today, and they are just in the middle of a two-year ramp-up period for most of their key streaming deals that brought earnings of about $12 million last year and will probably enable them to report earnings of more than $30 million this year (assuming a good gold price). That won't change whether the company is divided into 300+ million shares, as it is now, or into 60+ million shares after a 5:1 consolidation - the only thing that would really change is investor perception with the shares perhaps trading for $8.50 per share and earning 50 cents per share instead of trading at $1.70 and earning 10 cents.
Though that's not entirely true: there are also reportedly a fair number of institutional investors that won't invest in stocks on the Venture exchange, or that won't buy shares that are under $5 per share, so to the extent that Sandstorm would get past that benchmark and uplist to "grown up" exchanges that would also increase the potential universe of Sandstorm investors. So yes, I'm all in favor of stocks that I own getting more attention, and growing enough to attract institutional investors.
