A reverse stock split is when a company reduces the number of its outstanding shares by combining multiple existing shares into fewer shares, without changing the overall value of your investment.
This is the opposite of a regular stock split. Companies often use reverse splits to increase the price per share, especially if the stock price has fallen too low, which can help meet exchange listing requirements or improve the company’s image.
How Does It Work?
In a reverse stock split, the company consolidates several existing shares into one new share. While you end up owning fewer shares, each share is worth more, so the total value of your investment stays the same.
This means that you own fewer shares, but each share is worth proportionally more, so your total investment value doesn’t change.
Common Types of Reverse Splits
Reverse Split Ratio | What Happens |
1-for-2 | Every 2 shares become 1 share |
1-for-5 | Every 5 shares become 1 share |
1-for-10 | Every 10 shares become 1 share |
Simple Example
Suppose you own 10 shares of a company priced at $2 each, and the company announces a 1-for-5 reverse stock split.
| Before the Split | After the Split |
Shares you Own: | 10 | 2 |
Price per Share: | $2 | $10 |
Total Value: | $20 | $20 |
You now own fewer shares, but each is worth more. Your investment value remains the same.
Companies announce reverse stock splits ahead of time to inform shareholders, investors, and the market about the upcoming change. Plum will inform you via email or an in-app notification in due time.