Return performance surrounding reverse stock splits: can investors profit?(Report): An article from: Financial Management
A reverse split occurs when a company reduces the number of outstanding shares, while at the same time proportionally increasing the value per share. (For example, 4 shares of XYZ trading at .50 a share become one share trading at $2.00 a share. If you had 100 shares of XYZ before the reverse split, you would have only 25 shares after the split.) In theory, there should be no reduction in the value of the security. Once the stock begins trading, however, the price is always subject to market fluctuation.