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

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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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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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.