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Non-Tech : InvestRight Club Challenge
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To: Francois Goelo who wrote (1118)3/29/1999 4:18:00 PM
From: Jeffrey L. Henken  Read Replies (1) of 2662
 
The study is flawed for our purposes because it does not include OTC BB stocks. OTC BB stocks often use a reverse split as an excuse to issue more shares in the form of debenture funding. These shares are then dumped out on the market at a discount to the stock's price often with no buying support. In the worst case scenario the debenture fund will also short sell the stock.

It's not pretty.

Even when you discuss NASDAQ stocks with remarkable trailing fundamentals a reverse split is often followed by price erosion. The market tends to look forward, not backwards, and there is usually a good reason why the stock price fell in the first place. For instance I can give you a small oil stocks symbol that I follow and have watched. A reverse split failed to maintain higher share prices for this company despite past earnings.

In order for a reverse split to work the company must have strong fundamentals, receive strong retail support and avoid debenture financing at the very least.

Regards, Jeff
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