I’ve held a long position in RAM for about a month and today they announced a reverse 3:1 stock split effective Feb 10. At current prices, that would mean the stock would be worth about $11-$12. There are various reasons, from what I can tell, for why a company ends up doing a reverse stock split.

Either:

1. The undesirable reasons: the stock price has fallen on hard times, dropped below the $5 threshold that most mutual funds can invest in stocks at, and/or dropped below $1 and are at risk of being delisted,
2. The stock price has been below $5 for quite some time (say over a year), is picking up steam in terms of investor interest, and the company wants to raise the stock above the $5 level in order to allow mutual funds to be able to buy it.

I think that RAM falls into the latter case, making it an interesting spec buy. I have read conflicting opinions on the effects of reverse stock splits so I’d appreciate your opinions.

Here’s a bullish case for reverse stock splits from CNBC.

Here’s a video discussing Reverse Stock splits featuring Wade from Learning Markets.

Chart courtesy Finviz. Click to open in larger window.

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