While stock splits have no economic impact on the value of a company’s operations or finances when they split their stock and increase the number of shares outstanding it is generally considered a sign of optimism regarding the future and the potential for a higher share price. Conversely, reverse stocks splits, where a company lowers the number of shares outstanding, are considered a last ditch effort to boost a company’s extremely low share price. Rarely do they ever work. A perfect case in point is Dryships (DRYS).
Let’s say that back in early 2016, you decided to completely unplug from the market and buy and hold. Now, sixteen months later you decide to look and see how things have done while you “set it and forget it.” You head over to Yahoo! Finance and start looking to see how the prices of various stocks you hold have done during this time. One of the stocks you held was Dryships (DRYS). At a current price of $1.70, you think to yourself, “That’s pretty good since the stock was trading at under 20 cents at the start of 2016.” With 48,000 shares, that position is now worth over $80K, which is no small chunk of change, so you decide to take the money and run. But when you go over to your Schwab account and login, you see that your current position is just a single share. What the heck happened?
Welcome to the wonderful world of reverse stock splits. As shown in the table to the right, since the start of 2016 DRYS has had not one, not two, not three, not four, but five reverse stock splits! Back in March 2016, it had a reverse split of 1-25, which means your original 48,000 shares suddenly shrunk to just 1,920 shares. Then, five months later in August, it did another 1-4 reverse split, reducing the 1,920 shares down to 480. Just three months later, DRYS did another 1-15 split, so those 480 shares you now held were reduced to just 32 shares. The reverse splits continued in 2017 and on 1/23, DRYS did a reverse split of 1-8, which reduced those 32 shares to just four. Then, yesterday DRYS did another reverse split of 1-4 shares reducing your original 48,000 down to just one measly share trading at $1.70.
When you adjust for all the reverse splits in DRYS, its price chart is really something to behold. On a split-adjusted basis, DRYS was trading at over $8,000 per share back in early 2016. Following the election, the stock saw another brief spike, but quickly came back to earth, and now trades at under $2 per share. Over the last sixteen months, Dryships has done nothing but take on water!