Reverse Stock Split
A corporate action that consolidates shares, reducing their count while proportionally increasing the price per share.
What is Reverse Split?
A reverse stock split reduces the number of a company's outstanding shares by merging multiple shares into one, with the share price rising proportionally so that total market capitalization remains unchanged. For example, in a 1-for-10 reverse split, every 10 shares become 1 share and the price is multiplied by 10. Companies most commonly do reverse splits to lift their share price above a minimum threshold required by stock exchanges to avoid delisting, typically $1 per share on the Nasdaq or NYSE. While the action itself is economically neutral, reverse splits are often viewed negatively by investors as a signal of underlying financial weakness, since healthy companies rarely need to consolidate shares.
Example
Bed Bath & Beyond conducted a 1-for-10 reverse stock split in August 2022, consolidating shares after the price had fallen below $1. The split temporarily raised the price from around $0.30 to about $3.00 per share, meeting Nasdaq's minimum listing requirement. However, the company ultimately filed for bankruptcy in 2023, illustrating that a reverse split addresses only the price symptom, not the underlying business problems.
Source: SEC — Stock Splits