What Are Reverse Stock Splits and How Do They Work?

What Is a Reverse Stock Split?

By Matthew Frankel, CFP – Updated Jul 3, 2025 at 11:30 PM EST

Key Points

A reverse stock split consolidates shares, raising the price but not changing the investment's total value.
Companies often perform reverse splits to avoid delisting or to meet institutional investment criteria.
Investor reactions to reverse splits vary, making each split's impact uncertain and dependent on context.

Stock splits are most commonly associated with positive news since they typically happen when a stock has performed quite well and generally result in an increased number of shares owned by each investor. But those splits, officially called forward stock splits, are only one variety. It's also possible for a company to complete a reverse stock split, which works in the exact opposite way. Unlike forward splits, reverse stock splits leave shareholders with fewer shares, and they often result from situations in which a stock has lost a substantial amount of its value.

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Shareholder

An individual or entity that owns a portion of a company's stock, entitling them to a share of its profits and assets.

Here's a quick overview of what a reverse stock split is, why a company would want to do a reverse split of its shares, and whether a reverse split is a good or bad thing for investors.

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An infographic defining reverse stock splits and explaining how they work. — Image source: The Motley Fool

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Is a reverse stock split good?

A reverse split isn't necessarily good or bad by itself. It is simply a change in the stock structure of a business and doesn't change anything related to the business itself. That said, a reverse split is usually taken as a sign of trouble by the market, and most of the time it isn't done for a positive reason.

In rare cases, a reverse split buys a company the time it needs to get back on track. For instance, a reverse split worked for internet travel giant Priceline, now Booking Holdings (BKNG -0.28%), which did a 1-for-6 reverse split following the internet tech bust. Since bottoming in late 2000, shares of the travel company are up more than 6,000%. So it's fair to say that a reverse split can be an effective tool for struggling companies to use.

As previously noted, the reverse split itself doesn't result in any change in the value of an investor's position in a stock because the smaller number of post-split shares is offset by the proportionally higher per-share price. However, a reverse split can certainly change investor perception of the company. Stocks that go through reverse splits often see renewed selling pressure afterward, and the number of companies that emerge from reverse splits to produce strong long-term returns is small.

The short answer to the question, "Is a reverse stock split good?," is that it depends on the circumstances. If a company whose stock you own announces a reverse split, the best course of action is to read the press release and SEC filings detailing the reasons and decide if it was a smart business decision or a desperate maneuver to prop up the stock price.

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The bottom line on reverse stock splits

Despite the occasional success story, reverse splits aren't usually a good sign for a stock. Still, they don't have to be a death knell, either. Because reverse stock splits have no fundamental impact on a company, it's more important to look at the financial health of a stock to assess whether a reverse split is likely to work in the long run.

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About the Author

Matt Frankel, CFP, is a contributing Motley Fool stock market analyst and personal finance expert covering financial stocks, REITs, SPACs, and personal finance. Prior to The Motley Fool, Matt taught high school and college mathematics. He holds a bachelor’s degree in physics from the University of South Carolina, a master’s degree in mathematics from Nova Southeastern University, and a graduate certificate in financial planning from Florida State University. He won a SABEW award for coverage of the 2017 Tax Cuts and Jobs Act. He is also regularly interviewed by Cheddar, The National Desk, and other TV networks and publications for his financial, stock market, and investing expertise.

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@MattFrankelCFP

Matt Frankel has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Booking Holdings. The Motley Fool recommends GE Aerospace. The Motley Fool has a disclosure policy.