A reverse stock split, also known as a stock merge, combines multiple shares in a company to create a smaller number of more valuable individual shares.
For instance, an investor who holds 10 shares, each valued at $1, would end up with just one share after a reverse split of 10-for-1. However, this single share would now be worth $10.
A reverse stock split primarily affects a company's share price and not its overall value.
Nevertheless, it can serve as a potential signal that the company may be facing financial difficulties, as it increases the value of previously low-priced shares. In some cases, a company might resort to a reverse stock split to avoid being categorized as a penny stock.