Been following for a while and after seeing this RS announcement, I feel it's over for anyone holding anything - including me:
Taken form another site
"More broadly, however, recent research suggests that investing in a company that has just done a reverse split is a losing proposition. According to a 2006 paper that looked at 1,600 reverse-split stocks between 1962 and 2001, such stocks substantially underperformed the overall market during the three-year period following the reverse split -- by an average of 1.3 percentage points per month."
Someone - please tell me how wrong I am.....
Here's a thought: the company is obviously looking to preserve the value of the stock, long term, as many of its insiders are owners. So the Company stops the repurchase plan, lets the price fall, and does a r/s. After the r/s, they announce a secondary at a discount to both fill the coffers and increase their ownership percentage greatly- of course at great dilution to existing shareholders. Just think about a possible scenario...
A reverse split, in real effect, means nothing. Shares reduced and price increased. That's it.
However, the real problem is the deteriorating fundamentals which cause a company to do a reverse split. The reverse split does ZERO to improve the fundamentals of the company. Also, usually when a stock needs a reverse split, new financing options are very limited for the company and new buyers are unlikely for a secondary offering due to the poor fundamentals,
Thus, after a reverse split, the vast majority of companies continue to have their fundamentals deteriorate, debt become due and their cash decline and thus the price continues to decline after the split.
Finally, a reverse split signals this fundamental and technical negativity to traders who short the stock or holders who decide it's time to sell and take the loss before the stock price falls further.
So... only a real turnaround of the company and its fundamentals will cause a company's price to increase after a reverse split. Those are few and far between.
Hope this helps.
just looh at dht, if anyone is saying yours will be different they are company morons. the facts speak for themselves. get out as quickly and gracefully as u can and buy back in at a lower price if u like this co.
I am not sure a R/S is in the best interest of the company looking at the share count right now. If the company wants to improve the pps it needs to cut back right now on contracts that do not make economical sense at this point. They need to go on defence. Continue to buy back shares. Sell ships that are old or cost more to run.
Once things turn around they can then start to expand once more. Now if they continue to buy shares they will at some point in the future when things turn around, will then be able to increase the day rate and show a profit that will look much better since the share count would be less. Wallstreet then will take note and move the pps up where the company can then sell shares to fund expansion. Share holders do not mind companies selling shares when it makes sense to do so and when the expansion will further profitability. However for now they need to consolidate operations as the market is telling them to do.
Being a fully reporting audited SEC compliant OTC stock is just fine.....there are hundreds of high quality companies that trade with complete liquidity in that market. Try BASF for example...... hardly a junk stock trading at over $70 a share.
Heck at .55 cents this thing is a pink trading on the NASDAQ
"If they took the R/S off the table right now , I believe the stock price could recover 50% or more immediately."
The ultimate prospect of being de-listed and relegated to the pink sheets should be a larger concern than a reverse split.
It's certainly never the reverse split which kills a stock. It's the events leading up to that. I did an analysis on historical stock prices and it seems that stocks which have been going down for a year or longer often will continue slightly more than average.
In this case, the problem doesn't appear to be a bad company destroying value, it seems to be industry specific and I'm fairly certain that tide will come back in at some point.
Now of Star Bulk adds shares at lower prices, that would dilute the current shares and I don't know the answer to that. They've been paying dividends so that shows a penchant doing their fiduciary duty to shareholders.
That's quite a drop today with the stock losing 1/12 of its value.
Look at Citi & AIG reverse splits - both examples of shares that rose significantly after the split (depending on the time period you select). Bottom line is that companies doing a reverse split are also often companies that are heavily diluting the share price (hence the predicament). If SBLK does an RS, (seems very likely), they will be punished leading up to and likely immediately after the event. After that, the stock should just trade on fundamentals & industry perception.