What Are Rollbacks And Why do Companies do Them?

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First things first, we’re gonna call it a rollback, not a “Reverse Stock Split” it just sounds way fucking cooler.

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Now for the lesson: Most of you will know what a rollback is but really quick I will re-explain it in case you got brain damage from drinking too many beers over the holidays.

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Rollback: a corporate action where a company reduces the total number of its outstanding shares in the market, while simultaneously increasing the share price proportionally.

So if a $1 stock with 100m shares outstanding does a 10-1 rollback, they are now a $10 stock with 10m shares out. The company erases shares off the books and makes each share more valuable, so no your stock didn’t just go up 10x, the stock is still worth the same $ amount in your account as it was $1 as it is now when it’s $10, you just lost the proportionate amount of shares.

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Quite deceiving to the naive investor and sometimes when I check that 0.10 stock I almost bought last year and now it’s trading at $4 I almost have an aneurysm but then quickly calm down to see they have rolled back 40-1.

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Well, seems quite fucking retarded right? Why would a company want to make their shares more expensive at the fait of making their shareholders retain fewer shares and expose them to more downside? There are two main reasons.

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First - Meet exchange price requirements, some exchanges. Primarily the larger US exchanges will have a minimum $ a stock must be to get listed or remain listed on said exchange, so companies will roll back to meet this price requirement, fairly standard, not impressive but not necessarily malicious or harmful.

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Secondly - Why I wrote this, companies will use rollbacks to dilute, mitigate dilution, and restructure companies, especially in the nano/small cap game for pre-revenue companies who fund themselves through issuing shares in financings. A company trading below $0.05 may find it hard to find fundraising since they will have to issue a fuck ton of shares and dilute the living piss out of shareholders just to get enough dough for lunch at Joey’s. So they have to roll back 5 or 10 to 1 to mitigate all that dilution and have hopes of getting investors to put coins in the till. This isn’t necessarily a good thing, means the company is struggling and they have let their share structure get looser than a hookers snatch. But it doesn’t mean give up, I have seen many wins come post-rollback, but if this becomes a recurring thing, then maybe start to look elsewhere besides you’re probably so underwater that no DCA could even save you. So be wary of investing in cashless companies trading at pennies, a rollback could come in and either save you or in most cases smoke you beyond belief after that thing crashes back down to the price it rolled back at.

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Also, people utilize these rollbacks to essentially take one company, delete their shareholder base, and then create a new whole share structure, kinda like some savage Carl Ichan corporate raid-type shit but with penny stocks. How? Take over a company, roll it back to hell, so there are minimal shares out, and vend in a new asset (for shares) into the tiny float from before. Now they have a new company, new shares, and with a clean share structure besides the minimal amount left from the rollback. Good for the guys behind the deal since they have control over most of the shares now and can easily protect and climb the share price up, but the original investors have no choice but to hold on for dear fucking life. But something tells me, usually when the guys behind the deal fuck it up hard enough to roll it back once, it’s not common for them to have to roll it back again or pawn it to some meathead who will (not always! look at $PMET).

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So all in all, there is no major lesson here, just some insight into why shit happens in the markets and maybe some shit to avoid (rollbacks & shit-co’s that have a history of doing it or are in a position to do it). Stay safe out there folks, it’s the street is cold, and these Execs and promoters will do anything to eat their Fillet Mignon and drink their Cabernet Sauvignon.

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That's all folks,

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Thank you for reading and not financial advice.