RE: 20:129 Apr 2022 06:38
Stop fretting
Takeaways for a company
Here are some of the concerns that may prompt company management to consider share consolidation:
A principal reason as to why a company would want to artificially initiate the per-share price bumping is to prevent removal from the exchange due to the stock falling below the bid price.
The other significant reason for consolidation could be an attempt to be increasingly viewed as an attractive investment destination for many investors that have policies against taking positions in a stock which price is below a minimum value.
Companies considering a spinoff may also consider share consolidation in order to gain attractive prices.
Other concerns of corporate finance.
Most importantly, none of the above is why you’d have to worry about your shares in the company. The total proportion of your holdings won’t change after share consolidation. However, an individual’s shareholding (the number of shares they have) could reduce so they have fewer shares in the company but the percentage of ownership and value of their investment remains the same.
Takeaway for you
There is one thing, though. If a share price rises, it becomes more expensive. Therefore, technically, it becomes less affordable after share consolidation than before. That’s why, depending on the resulting price change, it may affect your decision to purchase the stock. For example, while a share value change from 5GBP to 10GBP is a 100% increase, you’ll unlikely change your mind if you were planning to buy it. However, if it’s the same percentage of growth but from 500GBP to 1000GBP, that’ll be a point to consider, won’t it? Thus, consolidations, such as the example described, are unlikely to cause concern during your investment journey.