Reverse splits usually do not benefit existing shareholders. If the stock goes up 1 point after the split, the shareholder gets a fraction of what he would have received had the stock gone up 1 point before the split. Also, inasmuch as the split is an artificial means of raising a share price, it is seen for what it is---a desperation play to raise pps when fundamentals do not justify any such increase. I certainly hope that CYTK does not go for a reverse split. Chances are that after the reverse spit occurs, the pps will drop and the net effect will be to reduce market cap and have a negative impact on the attractiveness of the shares. That will adversely affect all current shareholders.
I must say that in my past reverse splits have not delivered any value, however, this may be a different case. The company needs cash and issuing shares is the best way of getting new money. I am on the fence on this one, but it may actually be a great play. SRPT took a similar approach and they have done well by simply issuing new shares.
Huh? If stock goes up 1 point the shareholder gets a fraction? If the stock goes up one point the shareholder has an increase in value equal to what he would have had before the split!
And raising the share price would enable better buyers to play. Many finds don't entertain anything below $5.
The price could drop today and the market cap would be less. It's all on par!
The fundamentals are still the same at $1 or at $6.
Yanker: If I have 1,000 shares at $1 per share, and there is a reverse split of 1:10, I end up with 100 shares at $10 per share, If the stock goes up $1 in the original scenario, I get an additional $1,000. If the stock goes up $1.00 in the second scenario, I get an additional $100. The bottom line is that while it is true that total value at the time of the reverse split remains the same, the change in value, is less for each dollar increase in pps after the revese split. One of the primary reasons people buy stocks under 5.00 in pps is that they can acquire more shares with available resources than if npps were higher. Reverse splits negate this advantage.
Whether a company decides to do a split, reverse split or stock buyback has minimal bearing on how stock prices rise or fall long term. Stock prices are driven by corporate performance, profits, stability, growth factors, etc. Stock splits are generally done to boost stock performance and value to their shareholders.
From MSN: "But another researcher says reverse splits are good for investors. An equity strategist at Birinyi Associates studied the 14 stocks in the S&P 500 index that have reverse split since 2000. Of those, 12 were higher a year later. The average gain was 62.55%, CNBC reports."
Mr Blum knows it, but he really loves to screw long term shareholders. This is what he´s done the last several years since he is the CEO of the company. PPS has been in a mexican gas station toilet the last 5 years and the flushing continues.