Actually, I'm of the opinion that a reverse split should be effected when the stock gets back to the 1.75-2 level. Reverse splits do not help companies with no earnings etc, but they can be the right strategy for a company like Ampex....
The positives:
Assume a 1 for 4 at a pre split price of $2. Now I realize that for holders of 399 shares or less, your left with an odd lot which nobody likes, but I think the benefits outweigh that.
With earnings, let's assume, of 30 cents presplit, we'd end up with a stock with a price of $8, earnings of $1.20 and shares out of 12.5 million. The stock would be marginable and would be able to be included for consideration by a much larger universe of institutional money, both value and momentum players. I truly do not believe that a Company with $1.20 in earnings and rising revenue would continue to sell for less than 7 times earnings. Just getting to a 12 multiple would boost the stock 80%.
If the Company is successful getting revenue and earnings growth from acquisitions and internally, you'll get your original shares back through splits. Or what I believe is the model I see developing here, spinoffs through ipo or rights offerings of "Micronet Network Storage", "Ampex Video Services", or " Ampex Digital Technologies", or "Ampex Consumer Products Inc."
I would welcome feedback and debate since I shift my opinion on this fairly frequently. I have a good deal of experience with equity for debt exchanges and bankruptcy deals and a reverse split has a beneficial effect on good companies. It's the best way to reintroduce a company into the institutional universe. |
