Monday, 10 March 2014

Saizen price "miracle" - Stocks consolidation exercise

The sudden increase in Saizen's share price after the Japan Tsunami kept me wondering for a while, but just a short while before I found out what's the cause of the price hike.


It is not that the company has truly recovered and risen in value over such a short period, it is due to a stocks consolidation exercise aka a reverse split. So don't be too enthusiastic to buy in a stock that has suddenly risen without finding out the real reason behind. The actual market capitalization of the stock actually remained the same.


As quoted from Investopedia: "This procedure is typically used by companies with low share prices that would like to increase these prices to either gain more respectability in the market or to prevent the company from being delisted (many stock exchanges will delist stocks if they fall below a certain price per share). For example, in a reverse 5-for-1 split, 10 million outstanding shares at 50 cents each would now become two million shares outstanding at $2.50 per share."


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