FUNDAMENTALS EXPLAINED – Reverse Stock Split – Share Consolidation
On 19 April 2023, Richemont went through a Share Consolidation (Reverse Stock Split).
That’s why we saw the price move from R300 up to R3,027 (909%).
But before you get excited with whether you could have profited big time we need to remember what a Reverse Stock Split is…
What is a Reverse Split (Share consolidation)?
• The opposite of a stock split where
• When the company makes a corporate action to
• Reduce the number of its outstanding shares to its shareholders
• Which simultaneously increases the share price
• The shareholder will still have the same value proportional.
What happens to the par value of the share price?
A decrease in the number of shares means that the share price will go up!
Why would a company do a reverse spit?
The company might be under the impression that shareholders think the share price is too low.
So, they’ll cut the number of shares and increase the shareholder which will give the impression of the share price higher and more valuable.
EXAMPLE: With Richemont – 19 April 2023
SPECIFICS:
Share consolidation: Reverse Stock Split 10:1.
BEFORE: The share price was R300.00
AFTER: The share price is R3,027
No. SHARES OWNED: 100
AFTER CONSOLIDATION:
For every 10 shares you owned before, you now own 1 share.
So your 100 shares would be consolidated into 10 shares.
OVERALL VALUE:
BEFORE: 100 shares X R300 = R30,000
AFTER: 10 shares X R3,027 = R30,270
In this case, the value of the investment has indeed increased after the share consolidation but only marginally.
Trade well, live free.
Timon Rossolimos
Founder, MATI Trader
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Timon Rossolimos
Founder, MATI Trader
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