A reverse split pump in the small cap stock market refers to a situation where a company, typically with a low stock price, undergoes a reverse stock split in order to artificially inflate its stock price. Here's how it typically works:
Low Stock Price: Small cap stocks often have low prices per share, sometimes trading for just a few cents. This low price can make the stock less attractive to investors and may even lead to delisting from stock exchanges that have minimum price requirements. Reverse Stock Split: To combat the low stock price and possibly meet exchange listing requirements, the company executes a reverse stock split. In a reverse split, existing shares are combined to reduce the total number of outstanding shares, thereby increasing the price per share proportionally. For example, in a 1-for-10 reverse split, every 10 shares a shareholder owns are converted into 1 share, effectively increasing the price by a factor of 10. Pump: After the reverse split, there may be efforts to artificially boost the stock price, creating what is known as a "pump." This can involve various tactics, such as promotional campaigns, exaggerated press releases, or even coordinated buying by groups of investors. The goal is to create a perception of increased value and generate buying interest in the stock.