Best of the Week
Most Popular
1. Market Decline Will Lead To Pension Collapse, USD Devaluation, And NWO - Raymond_Matison
2.Uber’s Nightmare Has Just Started - Stephen_McBride
3.Stock Market Crash Black Swan Event Set Up Sept 12th? - Brad_Gudgeon
4.GDow Stock Market Trend Forecast Update - Nadeem_Walayat
5.Gold Significant Correction Has Started - Clive_Maund
6.British Pound GBP vs Brexit Chaos Timeline - Nadeem_Walayat
7.Cameco Crash, Uranium Sector Won’t Catch a break - Richard_Mills
8.Recession 2020 Forecast : The New Risks & New Profits Of A Grand Experiment - Dan_Amerman
9.Gold When Global Insanity Prevails - Michael Ballanger
10.UK General Election Forecast 2019 - Betting Market Odds - Nadeem_Walayat
Last 7 days
Gold and Silver Capitulation Time - 14th Nov 19
The Case for a Silver Price Rally - 14th Nov 19
What Happens To The Global Economy If the Oil Price Collapses Below $40 - 14th Nov 19
7 days of Free FX + Crypto Forecasts -- Join in - 14th Nov 19
How to Use Price Cycles and Profit as a Swing Trader – SPX, Bonds, Gold, Nat Gas - 13th Nov 19
Morrisons Throwing Thousands of Bonus More Points at Big Spend Shoppers - JACKPOT! - 13th Nov 19
What to Do NOW in Case of a Future Banking System Breakdown - 13th Nov 19
Why China is likely to remain the ‘world’s factory’ for some time to come - 13th Nov 19
Gold Price Breaks Down, Waving Good-bye to the 2019 Rally - 12th Nov 19
Fed Can't See the Bubbles Through the Lather - 12th Nov 19
Double 11 Record Sales Signal Strength of Chinese Consumption - 12th Nov 19
Welcome to the Zombie-land Of Oil, Gold and Stocks Investing – Part II - 12th Nov 19
Gold Retest Coming - 12th Nov 19
New Evidence Futures Markets Are Built for Manipulation - 12th Nov 19
Next 5 Year Future Proof Gaming PC Build Spec November 2019 - Ryzen 9 3900x, RTX 2080Ti... - 12th Nov 19
Gold and Silver - The Two Horsemen - 11th Nov 19
Towards a Diverging BRIC Future - 11th Nov 19
Welcome to the Zombie-land Of Stock Market Investing - 11th Nov 19
Illiquidity & Gold And Silver In The End Game - 11th Nov 19
Key Things You Need to Know When Starting a Business - 11th Nov 19
Stock Market Cycles Peaking - 11th Nov 19
Avoid Emotional Investing in Cryptocurrency - 11th Nov 19
Australian Lithium Mines NOT Viable at Current Prices - 10th Nov 19
The 10 Highest Paying Jobs In Oil & Gas - 10th Nov 19
World's Major Gold Miners Target Copper Porphyries - 10th Nov 19
AMAZON NOVEMBER 2019 BARGAIN PRICES - WD My Book 8TB External Drive for £126 - 10th Nov 19
Gold & Silver to Head Dramatically Higher, Mirroring Palladium - 9th Nov 19
How Do YOU Know the Direction of a Market's Larger Trend? - 9th Nov 19
BEST Amazon SMART Scale To Aid Weight Loss for Christmas 2019 - 9th Nov 19
Why Every Investor Should Invest in Water - 8th Nov 19
Wait… Was That a Bullish Silver Reversal? - 8th Nov 19
Gold, Silver and Copper The 3 Metallic Amigos and the Macro Message - 8th Nov 19
Is China locking up Indonesian Nickel? - 8th Nov 19
Where is the Top for Natural Gas? - 7th Nov 19
Why Fractional Shares Don’t Make Sense - 7th Nov 19
The Fed Is Chasing Its Own Tail; It Doesn’t Care What You Think - 7th Nov 19
China’s path from World’s Factory to World Market - 7th Nov 19
Where Is That Confounded Recession? - 7th Nov 19
FREE eBook - The Investment Strategy that could change your future - 7th Nov 19

Market Oracle FREE Newsletter

How To Buy Gold For $3 An Ounce

Are Share Rollbacks: Good or Bad for Investors

InvestorEducation / Learning to Invest Apr 19, 2012 - 01:54 AM GMT

By: Dudley_Baker

InvestorEducation

Best Financial Markets Analysis ArticleAs a general rule, we hate to see an announcement of a share rollback, however, there exceptions which we cover below. Investors should always be aware that if a company has, say over 150 million shares outstanding, in our opinion, it is a potential candidate for a rollback and the announcement should not come as a surprise.


Weak markets, a low share price, a large number of shares outstanding, little or no cash and you have a company which is an idea candidate for a rollback.

The basic concept of a rollback or consolidation in a company's shares is rather simple.

Objective

Companies will a large number of shares outstanding (normally over 150 million) are striving for a higher share price which may make it easier to sell more stock.

How it Works

Say XYZ Gold has a share price of C$0.10 and outstanding shares of 200 million. Total capitalization is C$20 million. The company is seeking to raise more monies but in a very slow market environment and a low share price finds this may be difficult.

The company then announces a rollback of 1 for 4. So, what happens? After shareholder approval and the rollback becomes effective, the share price would start trading at C$0.40 and now the outstanding shares of the company are 50 million. Total capitalization is still $20 million.

Effect on current shareholders

Technically current shareholders own ¼ of the number of shares but the price is now 4 times higher so zero net affect. So what's the big deal?

Reality of a Rollback

In virtually all cases of a rollback of shares the share price will tend to drift back down to a lower level. If the overall market environment for resource shares stays weak, then there is a high probability that the shares will still drift lower. Those shares above at C$0.40 may drift back down to C$0.30 or much lower. The question always is, 'how low can they go'?

Some of the juniors and exploration companies seem to do nothing through the years except to sell stock. Those monies are used for exploration and paying salaries of management but then it is time to do it again, and again, and again. Investors must filter out those companies which have a pattern of constant diluting the holdings of current investors while management continues to earn, sometimes, large salaries. Unfortunately, most of the time, additional shares are sold in a weak market with a low share price. Many don't seem to have any sense to sell stock in a rising market which is probably a good indicator of a management team you do not want to follow.

Our Opinion on Rollbacks

Normally, if we own shares in a company and a rollback is announced we will choose to immediately sell our position knowing that the share price will drift back down at which point we may decide to repurchase the shares or just ignore them all together. Remember, the reason for the rollback is normally to raise the price to make it easier to sell more shares.

Current Exceptions

We are witnessing a few cases of rollbacks not with the purpose of raising more money but rather to facilitate the listing of the company's shares on the NYSE Amex.

Due to the requirements of listing on some exchanges it is necessary to have a higher share price. The benefits of this listing could be enormous in attracting more investors, individuals as well as large investment groups and mutual funds in the U.S. The company believes the increased visibility of this new listing will result in a higher share price in the future and we agree.

Some of the companies which we follow have or in the process of listing on the NYSE Amex and have rolled back their shares in anticipation of this new listing. In these cases, we understand the reasons for the rollback as all investors are looking for the possibility of higher share prices as more investors become aware of these companies.

If you like the specific company striving for a NYSE Amex listing, great, Hold your positions but do not buy more shares in anticipation of the rollback, rather, wait for the completion of the rollback and watch the market closely. These shares may also drift lower providing investors an even better buying opportunity.

Investors in this case should continue to be optimistic:

  1. You like the company or you would not have bought it
  2. The company is applying for a NYSE Amex listing giving them much increased visibility and liquidity and ultimately, a higher share price.
  3. You may have the opportunity to buy the shares at a lower price, shortly after the consolidation.

Conclusion on Rollbacks

Immediately on the announcement of a rollback decide the reasons therefore and whether you want to remain a shareholder of this company.

As always, "It's your money, so perform your own research and due diligence".

We encourage all readers to sign up for our free weekly email.

Dudley Pierce Baker
Guadalajara/Ajijic, Mexico
Email: support@preciousmetalswarrants.com
Website: PreciousMetalsWarrants
Website: InsidersInsights

Dudley Pierce Baker is the owner and editor of Precious Metals Warrants and Insiders Insights. Articles are written by Dudley Baker along with contributing editors, Arnold Bock of Mendoza, Argentina and Lorimer Wilson of Toronto, Canada. PreciousMetalsWarrants provides an online subscription database for all warrants trading on junior mining and natural resource companies in the United States and Canada and a free weekly newsletter. InsidersInsights alerts subscribers when corporate insiders of a limited number of junior mining and natural resource companies are buying and selling.

Disclaimer/Disclosure Statement:PreciousMetalsWarrants.com is not an investment advisor and any reference to specific securities does not constitute a recommendation thereof. The opinions expressed herein are the express personal opinions of Dudley Baker. Neither the information, nor the opinions expressed should be construed as a solicitation to buy any securities mentioned in this Service. Examples given are only intended to make investors aware of the potential rewards of investing in Warrants. Investors are recommended to obtain the advice of a qualified investment advisor before entering into any transactions involving stocks or Warrants.

Dudley Pierce Baker Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules