What is a reverse stock split

A reverse stock split is a corporate action where a company reduces the number of its outstanding shares by consolidating them into fewer, higher-priced shares. This is the opposite of a stock split, where a share is divided into multiple parts.

1. Impact on Shareholders: Each shareholder receives fewer shares in proportion to their pre-split holdings, which can lead to a higher per-share price and potentially higher value for shareholders if the stock price increases.
2. Company's Strategy: Reverse stock splits are often employed to boost the stock price, especially for low-priced stocks, to meet exchange rules or attract investors. They can also be used to avoid being delisted and to signal to the market that a company is taking action to improve its stock's marketability.
3. Market Perception: Reverse stock splits are sometimes viewed negatively by investors as a sign that a company is in distress or cannot increase its stock price through better performance. However, they can be a legitimate strategy to improve the stock's marketability if accompanied by other value-adding initiatives.

In conclusion, a reverse stock split is a corporate action that reduces the number of shares outstanding by consolidating existing shares, which can lead to a higher stock price and potentially improve the company's marketability.