Many large companies, such as NVIDIA and Walmart, have done stock splits in order to lower the price per share and thus make their shares more affordable to retails investors. Reverse stock splits have the opposite effect by instead increasing the price per share. While reverse stock splits don’t actually change the company’s valuation, they are often done by small, financially struggling companies.
In some cases, a reverse stock split is done to prevent the delisting of a company from a stock exchange. The New York Stock Exchange (NYSE) and Nasdaq both require companies to maintain an average closing price of at least $1 per share over 30 consecutive days. Companies struggling to stay in compliance with the $1 per share minimum price rule may opt to do a reverse stock split. A reverse stock split requires providing the stock exchange with at least 10 days’ notice and obtaining shareholder approval. In 2024, 464 Nasdaq-listed companies did reverse stock splits.
A reverse stock split reduces the company’s number of outstanding shares, which results in a proportionate increase in the price per share. It does not change the company’s total valuation or a shareholder’s total investment value. For example, after a 1-for-10 reverse stock split, an existing shareholder that held 1,000 shares at $1 per share would hold 100 shares at $10 per share. Some small shareholders may be “cashed out”, meaning they will receive cash in lieu of a fraction of a share.
Although doing a reverse stock split can be a red flag to investors, it can provide small companies an opportunity to come back stronger. However, investors are often right to proceed with caution. Reverse stock splits tend to be accompanied by issuances of convertible notes to financial backers of the company, which dilutes shareholder value for retail investors.
Bollinger Innovations, an electric vehicle manufacturer, recently announced a 1-for-250 reverse stock split. This means every 250 existing shares of the company’s common stock will be consolidated into one share. Proportional adjustments are made for other form of outstanding equity, such as warrants and convertible notes, that are exercisable or convertible into shares of common stock. Since 2022, Bollinger has completed 9 reverse stock splits. Of those reverse stock splits, 5 have been completed in 2025 so far. Bollinger has indicated that the main reason for the reverse stock splits is to maintain compliance with the Nasdaq $1.00 minimum share price requirement.
Faraday Future Intelligent Electric, another struggling electric vehicle maker, has also completed a number of reverse stock splits in recent year. In August 2024, it executed a 1-for-40 reverse stock split. The company has experienced weak demand for its electric vehicles and a high cash burn rate. Faraday attracted the attention of meme stock investors in 2024, at one point reaching a daily trading volume of 160 million shares.
The Securities Industry and Financial Markets Association (SIFMA) and market makers have advocated for tougher reverse stock split rules by stock exchanges. However, stock exchanges are often motivated to keep penny stocks listed in order to generate listing revenue.
