WHAT IS A REVERSE STOCK SPLIT? 📈 Reverse Stock Splits Explained #Best Education Page #Online Earning

how's it going today guys so today we're

going to be talking about a reverse

stock split now this was a video that

was suggested by one of you guys I

certainly appreciate the suggestion I do

have like over a hundred ideas for

videos that I want to do but I really

appreciate that you guys constantly are

giving me new suggestions because I'm

hoping that is the list that just never

gets smaller I'm hoping it just keeps

growing so that way I just never run out

of content and there's just so much to

talk about with the stock market that I

don't see myself ever running out of

videos but basically you guys give me

some great tips sometimes on videos to

cover and this was an excellent tip was

talking about a reverse stock split now

it's funny because the person who

reached out to me before this I really

had never familiarized myself with a

reverse stock split and about a week

after somebody had mentioned this to me

one of the stocks that I invest in

through my company that I work for

National Grid they announced a reverse

stock split up in 11 to 12 ratio and at

the end I'll kind of explain why they're

doing the reverse stock split because

it's not the same reason as the example

we're going to go through here which is

the more common example but anyways

let's get into whatever burst stock

splits so basically in this situation

the reverse stock split is a corporate

action in which a company reduces the

total number of outstanding shares and

as we've said before outstanding shares

is basically the shares that are held by

everybody both public as well as private

and institutional investors it's the

total number of shares out there of that

company they're looking to reduce the

number of shares that are out there

outstanding shares are consolidated into

fewer shares so basically you have your

board of directors and at a certain

point they're going to say ok our stock

price is way too low usually the issue

that they run into it they're risking

their stock being delisted so they don't

want to go through that so they decide

to basically consolidate shares to

consolidate a large number of shares

into one share that way the stock price

is inflated so basically what they do is

they will oftentimes put it to a

shareholder vote so we'll send around a

tabloid or basically a proxy where

basically if you're a shareholder with

building voting rights you can vote for

or against the river

split if it passes or if they are not

putting it to a vote they basically at

that point um are taking a large number

of shares and so on consolidating them

into one so my example here we have ten

different shares and then it's basically

being broken down our ups are being

combined into one share so this would be

a ten to one reverse split so ten shares

of this stock now become one share of

that stock what's important to notice

here guys and a lot of people have this

misconception with a splits in general

whether it's a forward or reverse split

that is that no value is being added or

lost that is because market

capitalisation does not change during

stock split what's important to note is

is that a reverse split is usually a bad

sign for the company it's not something

they do in good times it's not something

they do when the stock is at sky high

level they don't go oh wow our stock

price is so high let's consolidate

shares in you know 10x our stock price

because then it's less affordable for

people who are basically beginner

investor is just getting started I mean

you don't want to have your share price

be sky-high it's not advantageous in

most cases for a company but at the same

time you don't want to have your share

price trading so low that you're risking

being delisted so that's kind of where

in either of those two extremes you'll

see companies doing it forward or

reverse stock split now a reverse split

like we said it's usually a bad sign for

that company and oftentimes it's

referred to as a share rollback or just

simply consolidation of shares but like

we said here no value is being added or

lost during a reverse split and then

because market capitalisation does not

change so here's two examples here this

is basically let's say this is a stock

that's trading at a very low share price

there there are they're risking being

delisted at this point and they're going

to consolidate shares in a twenty to one

reverse stock split so the market

capitalization is ten million dollars

they have 20 million outstanding shares

making their price per share of 50 cents

that is very low and they basically want

to consolidate 20 shares into one share

so if somebody has 20 shares of this

company they're going to do a reverse

split and now those 20 shares means that

person now has one share of stock in

that company so now basically the number

of outstanding shares goes from 20

million to 1 million

the market capitalization does not

change - the only factor that can change

now is your price per share so that

increases the price per share to ten

dollars but the problems here guys is

that a reverse split often sparks a

sell-off because like we said it's a

very bad sign for a company in most

cases so why a company does a reverse

split we kind of went over this already

the most common reason is listing

requirements that's because a stock

exchange typically specifies a minimum

bid price for a stock to remain listed

now most stocks you know most companies

want to be listed on into the new york

stock exchange with a NASDAQ exchange

stocks also trade on the Pink Sheets as

well as the over-the-counter bulletin

board but that's where you went into

penny stocks and those are obviously

very those are less prestigious stocks

those are not the ones that people are

usually talking about or generally

investing in there's a there's a very

small market in most cases good stocks I

think the better stocks trade on the New

York Stock Exchange well then as that

exchange and they have a requirement

basically that big price for a stock to

remain listed is that one dollar what's

interesting is this was actually waived

in the 2008 stock market crash because

so many stocks were traded so low they

got rid of that requirement for a while

but as far as I know I haven't looked

into it but I'm sure that at this point

there is that minimum in order to stay

listed on the exchange of a one dollar

minimum bid price for a stock to stay

listed so basically they have a choice

number one they can reverse split to

inflate the price per share and then

risk pushing and then risk basically

pushing that stock into a sell-off

because that is a very bearish sign for

that stock when they do a reverse split

in this scenario or they can basically

risk being delisted because if the stock

price doesn't recover then they can be

delisted from the major stock exchange

and end up trading on the

over-the-counter bulletin board or on

the Pink Sheets so basically those are

their two choices and this is the most

common situation you see with a reverse

stock split that's what's interesting as

well is that reverse splits can actually

deter sort selling and obviously short

selling for those of you guys don't know

those are people who are basically

borrowing shares excuse me those are

basically people who are borrowing

shares of that stock and at that point

they are holding those shares of paying

interest on them they're not actually

holding them they basically are

lowering shares that have been sold to

somebody else they're waiting for the

stock price to go lower and then when

they cover that position they basically

make whatever the difference is between

those prices - what they paid an

interest of a broker during that time

period

that is not good for a stock to have a

lot of people who are short selling it

so sometimes you'll have people do a

reverse split or have a company do a

reverse split to simply deter a short

seller the reason that is the torah'

short selling is because number one is

lowering the number of outstanding

shares and that makes it harder to

borrow shares and the second is the fact

that that limited liquidity associated

with the lower amount of outstanding

shares may widen the spread which is the

difference between the bid and the

asking price so that's one reason as

well that people may consider or

companies may consider doing a reverse

stock split okay so like I said the

company that I invest in the company I

work for is well announced about a week

ago that they were doing ever verse

stocks but they set around a whole

letter about it and they are doing an 11

to 12 split so basically 12 shares of

the stock now become 11 now my company

National Grid they are at no risk of

being delisted

basically what happened with them is

they sold off a major piece of the

business okay so what they're doing is

they're paying out a special dividend

and it's going to be paid out to the

shareholders and basically the

explanation because I was actually on

the call for that the explanation they

gave for the reason in doing that is

that they want to do the reverse split

to basically protect their dividends

because they don't want to basically

have a lower amount of earnings or

revenue coming and now that they sold

off a major piece of the business they

don't want that to affect their

basically their dividend payout to the

point where they couldn't afford to keep

dividends where they are so by

consolidating shares on from 12 to 11

they're going to be able to continue

having a track record of rising

dividends that are outpacing the rate of

inflation that was the reason they

gained for doing that it's very logical

and they're also really trying to

protect the stock price you know the

stock as a utility stock doesn't have

much volatility and while many people

would understand that this is a good

thing for that company because they were

able to sell a piece of the business and

they got more than what the market

expects and expected them to get for

that many investors would look at this

as a base this year over stocks but and

think oh that's a bad sign but the

reason for them doing this is much

different than this

arealso most commonly it is because of

listing requirements but there are other

anomalies out there where companies may

do this for other reasons so don't

always assume that it's basically

because they're worried about being

delisted obviously here's an example

right there of totally different reasons

to do a reverse stock split anyways guys

that's pretty much all I got for this

video if you did enjoy it please drop a

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uploads and as always I thank you guys

for watching this video

#Best Education Page #Online Earning

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