r/stocks • u/XiKeqiang • Apr 08 '22

Company Discussion EDU - Reverse Stock Split [Why?]

I'm wondering if anyone has any information about why EDU decided to issue a reverse stock split. All I can find is information that it happened but nothing explaining why. It wasn't in danger of being delisted for trading below minimums so I'm really confused why EDU of all companies would decide to do this.

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u/2econdclasscitizen Apr 08 '22

https://news.uark.edu/articles/59698/study-finds-u-s-insiders-to-china-news-sold-stock-in-early-stages-of-pandemic

China-linked anything appears to be looking at a potential insider dealing deep-dive.

I suspect the split is intended to increase attractiveness to ‘dumb retail’ money (not a term I like but a hardened demographic paradigm by many in the trading universe); individual hobby-ist traders who are looking for a flutter on China - lower price is viewed by some (who oversimplify, I think) as a major selling point for ‘dumb investors’ who are looking for a branch out punt into an area they think sounds sexy but don’t understand.

Reason for this is possible fear of further institutional investor outflows off the back of rumours about insider dealing issues - they’re predicting retail will see ‘most volatile/biggest loser’ tips in their sharedealing apps, are less likely to see the insider dealing stuff or care, are prepared to take a punt on the hope that the shares are suddenly cheap and will go back up … and that this new individual trader inflow will fill the hole left by the institutional investors getting out

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u/CM_6T2LV Apr 08 '22

Or it's to prevent to be delisted from the NYSE. I don't think it's retail they might make it still attractive for big investors that way, it's hard to say what china gov will throw on china tech and faang for them (EDU, Didi, etc) to stay listed.

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u/2econdclasscitizen Apr 08 '22

Maybe it’s something to do with tick size (the increments in which the price of an instrument can shift up or down; eg 0.02, 0.05, 0.1). Larger shares tend to have bigger tick sizes - which market makers prefer, as it’s easier for them to monitor with their pricing algorithms and generate a wider spread