Is the next play in Mr. Market's playbook a reverse?
A wave of reverse stock splits appears almost inevitable, as battered stocks try to maintain their stock listing and win over investors who shy away from speculative stocks that trade in pocket change.
If the company is unable to lift its shares organically, a reverse split is one of the alternatives that the company is considering.
It's not the only company on the exchange's watch list. The NYSE sent a similar notice to Citadel Broadcasting
Reverse splits aren't all that different than the more conventional stock splits. When a company declares a 2-for-1 stock split, investors see their share counts double as a stock price gets cut in half. Reverse splits work the other way around. A 1-for-10 reverse split, for example would find a company with 10 million shares at $1 apiece become the same $10 million company, only with a million shares at $10 apiece.
Reverse splits are becoming more common these days. Sun Microsystems
It's humbling. It's embarassing. It's also sometimes necessary. Beyond exchange listing standards, consumer-facing companies can't afford to be associated with dirt cheap prices.
Will a thrill-seeking teen, unsure about whether or not to renew his Six Flags season pass, pull up a stock price and decide against it because the stock closed at $0.65 a share yesterday? No, but a pocket-change share price can hurt in other ways, as traditional media lays off on the fiscal accolades, and potential entertainment-industry executives resist the urge to partner with Six Flags.
I suggested that satellite radio giant Sirius XM Radio
A reverse split is a zero-sum game, but it can still fool plenty of people who pull up a stock quote. It also can attract institutional investors who wouldn't dabble in lower-priced equities.
Companies like Citadel and Six Flags may be the next batch of reverse stock split candidates, but they're really just about to open up the floodgates.
More news than static on Sirius XM:
XM Satellite Radio is a former Rule Breakers stock pick. A free 30-day subscription will shed some light on why the satellite radio company made the cut before being cut.
Longtime Fool contributor Rick Munarriz subscribes to both XM and Sirius and has a 2008 Six Flags season pass. He does not own shares in any of the companies in this story, save for Six Flags. 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.