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Is a reverse split of an equity ever a good thing on its own, or does it need to be accompanied by a drastic, positive change in the underlying company to be anything other than a last-ditch desperation ploy?

-- J.L.

David Peltier:

Your perception is correct. A reverse split is the kind of event where at least nine times out of 10, the stock eventually falls back down to where it was trading before the reverse split.

That said, when there's a legitimate business model and catalysts for turnaround, it's possible that a reverse split can help resuscitate a stock by taking the share price above the $5 minimum threshold that many institutional shareholders have.

David Peltier is a research associate at In keeping with TSC's editorial policy, he doesn't own or short individual stocks. He also doesn't invest in hedge funds or other private investment partnerships. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Peltier welcomes your feedback and invites you to send your comments to

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