If I told you about a company whose stock price is about to grow tenfold in a few weeks, would you listen?
If I told you to stay away, would you keep listening?
See, shares of online retailer Bluefly
Yes, Bluefly is another penny stock throwing its hat into the reverse split ring. In a smoke-and-mirrors way to maintain its Nasdaq listing, the 1-for-10 reverse stock split will transform a company with 134.3 million shares at $0.46 today into a company with 13.43 million shares at $4.60, or 10 times wherever the shares are at by the market close on April 3, 2008.
Nothing changes. Bluefly will remain the same profitless Internet apparel retailer, one that can't even muster positive earnings during the seasonally spiked holiday quarter.
The ups and downs of going backward
Reverse stock splits aren't pretty. They are admissions of failure. They are public declarations that certain companies can't dig their way out of the pocket change muck on their own.
History isn't kind to the companies, even when they're giants like Sun Microsystems
Sun is no chump-change chump. We're talking about a $15 billion company here. Still, if Sun hasn't held up well, what hope is there for the more obscure reversers -- like Bluefly -- to come out as winning investments on the other side of this split makeover?
The sad truth is that most reverse stock splits are executed by penny-stock garbage that you've thankfully never heard of. However, Sun isn't alone when it comes to household names biting the bullet. In the fall of 2006, JDS Uniphase
Some splits aren't bananas
They're not all duds. Priceline.com
The key is to boost a split with catalysts to keep the stocks inching higher after the reverse. Sun probably has that going for it. The timing just proved to be awful, as the overall market was peaking.
Where does that leave us? Yes, Bluefly. I don't smell the catalysts to propel the stock higher. Like many reverse split candidates, it's simply doing it to appease Nasdaq listing requirements.
I've seen how that ends. It's rarely pretty.
Reverse the clock to revisit these related stories:
Priceline is an active recommendation for Stock Advisor subscribers. Learn more about the stock -- without having to split in any direction -- with a free 30-day trial subscription.
Longtime Fool contributor Rick Munarriz knows that you can't turn back time, but you can take back shares outstanding. He does own shares in TiVo. He is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has a disclosure policy.