The issue of new shares with lower par value instead of shares of previous issues. The increase in the number of shares of the company does not cause a change in its capitalization. For example, a double split of $ 1 shares (two shares per one) means that the number of shares doubles and the price of each is halved to 50 cents. The total market value of the company’s assets remains the same. The purpose of this fragmentation is to reduce the average share price to facilitate its realization. Only the shareholders meeting can decide on Split. The reverse process, when shares of lesser value are changed to shares of higher nominal value, is called “reverse split”. Here is the link to one of our previous publications regarding the “Reverse Split”:
What kind of benefits can extract the Penny Stocks the investor from the Split? Let’s figure that out.
There are cases when the share price of the company is unreasonably high and can’t compete with similar companies because of this. This affects the liquidity of shares and their market value. They begin to decline, and the company suffers losses. In those moments the company is organizing Split. Applying the crushing of shares, the company receives an influx of new investors.
In addition, statistics show that in most cases the share price increases after the Split. This happens under the influence and due to increased demand. This fact, by the way, is a good opportunity for traders to sell shares after their crushing and imminent price growth.
At the same time, those Penny Stocks investors who at the time of application of the split were already a shareholder of the company, do not lose anything. They just have greater number of shares than they bought initially.