What Is A Reverse Split?

As a new investor, I did some research so I could know what a reverse split is. According to Investopedia its, “A reduction in the number of a corporation’s shares outstanding that increases the par value of its stock or its earnings per share.”

As bad as it may sound, it doesn’t harm an investor’s overall value in the stock. As the number of shares increase, the price per share increases. For example, a 1-for-3 reverse split means you get a third as many shares, but at thrice the price.

Most companies consider a reverse split to prevent from being delisted on the NYSE or NASDAQ for not meeting the minimum trading requirement of $1 per share. Currently Thornburg Mortgate is planning a reverse split without investor’s approvals, while Memory Pharmaceuticals urges its investors to okay a reverse stock split.

Some investors feel that its good to buy into a company around the time of a reverse split because the trade price is so low, especially while Memory Pharmaceuticals (MEMY) is aiming for breakthroughs for its drugs that are currently used for neurological diseases associated with aging, such as Alzheimer’s disease.