Say you own 800 shares of stock. Current stock price is $13 per share.
Total value?
$10,400.
After stock split, you now own 100 shares of stock. Price after split is 104 per share.
Total value?
$10,400.
NO CHANGE.
Great right?
Well, not so fast - GE has been selling shares on the open market over the past few quarters and its been accelerating...more shares are sold on open market.
When GE does this, it floods the market with equities and can drive the price down.
Solution?
Reverse stock split.
So, say GE has 8Billion shares outstanding (they do - its close to that)
After stock split, GE will have 1Billion shares outstanding.
No change in market cap, and stock is higher price.
NOW what they will do is sell fewer shares to raise capital, diluting existing stock/bagholders.
When GE sells shares, the price per share WILL GO DOWN.
100,000,000 shares sold will net the company about $10B.
Each $10B in shares sold will dilute total shares outstanding and drive stock price down by approximately 5%.
GE is super hard up for cash, and GE's credit default swaps are RISING.
It means YOU, dear shareholder, are about to be LIQUIFIED - GE is going to use the split to reduce shares outstanding, then they are going to sell shares on the open market to raise capital.
This is your warning - The reverse stock split happens on 8/2.
Dont be the last bagholder to realize you are getting a raw deal.