Reverse Splits
posted on
Jan 07, 2009 06:20PM
Let's all remember, the stock price is driven by earnings and a share price multiple based on earnings per share.
The reverse split is a manipulation to increase the stock price in direct relation to reduced number of outstanding shares which has absolutely nothing to do with earnings. And more often then not it is the lack of earnings that proms a reverrse split . Just look at the reverse splits that have failed to achieve the objective of price appreciation.
Earnings and/or high expectations for sustainable future earnings is only investment basis that will drive up stock price.
Reverse splits in my opinion lack corporate fiduciary responsibility and should be soundly opposed by every shareholder.
Dividend splits on the other hand are an excellent method to compensate the shareholder by reducing the per share price too encourage more investors.
Also,corporate share buy backs are an excellent method that offers oppportunity to leverage the stock price for use in M&A's. It also increases the earnings per share when held in Treasury when not used for M&A's, which results in increasing the earning per share multiple and share price.
Please explain the wisdom of a reverse split for my benefit.