Is a reverse stock split simply the opposite of a stock split?

Yes. While a stock split divides one share into multiple shares to increase the share count, a reverse stock split combines multiple shares into one to reduce the number of shares outstanding. In theory, the per-share price rises in proportion to the consolidation ratio.

Can a reverse stock split create odd-lot shares?

Depending on the consolidation ratio, a shareholder's holding may end up as a fraction of a standard trading unit, resulting in odd-lot shares. Odd-lot shares generally cannot be traded on the exchange and typically must be cashed out by requesting the company to buy them back or through similar procedures.

What Is a Reverse Stock Split?

A reverse stock split is a corporate action in which multiple existing shares are combined into one share at a predetermined ratio, reducing the total number of shares outstanding.

Why companies do it

A reverse stock split may be carried out to raise the trading unit price of a stock that has fallen too low, or to satisfy listing maintenance requirements. For example, consolidating 10 shares into 1 reduces the shares outstanding to one-tenth, and in theory the share price rises to ten times its pre-consolidation level.

What to keep in mind

Because the company's total assets and profits do not change before and after the consolidation, its underlying value does not increase or decrease. However, depending on the number of shares held, fractional (odd-lot) shares may arise, which can come with restrictions on rights and how they can be cashed out. If a stock you hold undergoes a reverse split, it is important to check the details in advance.

This article is provided for general informational purposes only and does not recommend or solicit the purchase or sale of any specific investment method or security. Final investment decisions are your own responsibility.

Frequently Asked Questions

Is a reverse stock split simply the opposite of a stock split?: Yes. While a stock split divides one share into multiple shares to increase the share count, a reverse stock split combines multiple shares into one to reduce the number of shares outstanding. In theory, the per-share price rises in proportion to the consolidation ratio.
Can a reverse stock split create odd-lot shares?: Depending on the consolidation ratio, a shareholder's holding may end up as a fraction of a standard trading unit, resulting in odd-lot shares. Odd-lot shares generally cannot be traded on the exchange and typically must be cashed out by requesting the company to buy them back or through similar procedures.

Related terms

Stock Split