Reverse Stock Split (R/S)

A reverse stock split (often abbreviated R/S) consolidates a company's shares at a fixed ratio. For example, a 1-for-10 R/S converts 10 old shares into 1 new share, multiplying the per-share price by 10. The company's market cap stays the same — you have 1/10th the shares at 10x the price.

Penny stocks frequently reverse-split to meet Nasdaq's $1 minimum listing price requirement. This usually signals distress, not strength: the company couldn't get its price up organically, so it engineered a price increase through a mechanical share consolidation. Post-R/S, penny stocks frequently drift back down because the underlying weakness hasn't been fixed.

Key Points

• Math: a 1-for-X R/S multiplies share price by X and divides share count by X. Market cap unchanged.
• Common ratios: 1-for-5, 1-for-10, 1-for-20 — even 1-for-100 in extreme cases.
• Listing compliance: most often used to keep stock above Nasdaq's $1 minimum bid requirement.
• Historical pattern: post-R/S, penny stocks frequently drift back down — the underlying weakness wasn't fixed.
• Fractional shares: usually cashed out to the nearest whole share.

Related Scans

• Breakdown Penny Stocks

Related Concepts

• Dilution
• OTC vs Nasdaq Penny Stocks