“JDSU’s reverse stock split is intended to enhance investors’ visibility into the Company’s profitability on a per share basis,” JDSU said in its announcement. “The Company also believes that a higher share price could broaden JDSU’s appeal to investors, in addition to reducing per share transaction fees and certain administrative costs.”
Well, to be accurate, Ciena did a 1-for-7 reverse split. Ciena’s announcement gave an explanation that sounds a lot like the one JDSU offered:
The purposes of the reverse split are to increase the per share trading price of Ciena’s common stock, thereby appealing to a broader range of investors; and to provide investors with more useful information in making period-to-period comparisons of Ciena’s earnings per share. To the extent that the reverse split does succeed in attracting more investor interest in the stock, shareholders may also benefit from improved trading liquidity of the stock.
But the bottom line is, reverse stock splits are the equivalent of dabbing on makeup: underneath, nothing is really different. Eight shares for two bucks, or one for $16, you still have the same company. Buy the stock if you like the fundamentals; but not because they did a reverse split.
In after-hours trading, JDSU shares have gained 5 cents, to $2.20.