Did your shares shrink?
It might have been consolidated.
What Is A Share Consolidation
Share consolidation is a corporate action conducted by the company with the intention to reduce its number of shares trading on the stock exchange.
It does so by reducing the number of shares held by its existing shareholders. In the US, it is also known as ‘Reverse Split’.
Prefer to learn via listening and watching? Alvin shares about Share Consolidation in this #AskDrWealth video:
Let’s use HupSteel as an example.
Assuming you are holding 100,000 shares. A 5:1 share consolidation means, for every 5 shares you own it will be reduced to 1. In this example, you can expect to see your shareholding become 20,000 after the consolidation(100,000 / 5).
How Does It Affect You As A Shareholder?
Is that a bad thing? You paid to buy 100,00 shares and now the company is about to reduce your shareholdings – are they playing a game? No, it’s not.
It has no negative impact on your end. Share consolidation reduces ALL the shares held by the shareholders and when every shareholders get affected no one loses out.
No doubt the number of your shares is lesser, but the percentage ownership and value of your investment remain the same.
Let’s go back to the 5:1 consolidation example mentioned above. When the shares consolidate, your number of shares become lesser (divide by 5) but your price per share becomes higher (multiply by 5). This has a net neutral effect on your investment.
Anything you need to do?
Actually, nothing much.
The company will send you a letter to pass a resolution on a AGM/EGM. After the consolidation takes place, a new stock quote is given, the shares price become higher and your shareholding becomes lesser.
Do note that your broker would not correctly reflect the number of shares you have after the consolidation. Rather, it will show on your CDP statement, check out Alvin’s article to find out why.
However, you should note that consolidated stocks tend to end up with lower liquidity and their share price has a tendency to go down thereafter, if the underlying business isn’t doing well. So, maybe it’s time to re-evaluate if the stock still deserves a spot in your portfolio.
Why do companies undergo Share Consolidation?
You might be thinking if there is no impact on your end, what is the purpose of a share consolidation?
We now know that one of the effect of share consolidation is the increase in share price. In general, poor performing stocks will undergo share consolidation.
Many stocks listed on the SGX have underwent share consolidation and have changed their stock symbol as well.
Good one.
If you bought yhe share at 0.027 and the share pricr dropped to 0.18 you lose.
Correct my ratio purchase price 0.027. Drops to 0.018 then you lose thr initial investment
Generally, a reverse stock split is not perceived positively by market participants. It indicates that the stock price has gone to the bottom and the company management is attempting to inflate the prices artificially without any real business proposition. Additionally, the liquidity may also take a toll with the number of shares getting reduced in the open market which is not a positive sign for any listed company.
I wish I knew this earlier, a company I bought shares in @18.5p consolidated at ration 10:1 to raise share prices to 185p, and on that same day, the share price fell to 107p from 185p wiping out almost half of my investment.
Consolidation merely gives an already bottomed out stock room to drop in value some more and stay listed.
true 😀
good stocks split. lousy stocks consolidate.
Hi I bought 710000 shares at a price of 1c. consolidation price is 0.25c why did I lose R6810 in my portfolio?
Consolidation was not a good thing at all in my case. I had 359,462 shares with a total value of around £5000, after consolidation I had 3,590 shares with a total value of £200, how is that good? I suppose there is nothing I could have done, or can do, just a bad choice of investment? I still have them but they’re not doing anything…