Companies That Have Reverse Stock Splits Underperform

In a recent Barron’s article, the suggestion that reverse splits can send a negative signal to investors is confirmed by the subsequent price performance of those companies that have implemented them over the past 10 years.  (“Why Reverse Splits Are Rare,” August 6). All five companies cited as having reverse splits since 2011 have underperformed the S&P 500, with four of them substantially falling short of this benchmark. Citigroup’s compounded annual return since its reverse split in 2011 has equaled 4.9% vs. the S&P 500’s return of 12.7%. The corresponding numbers for Alcoa are 10.4% vs. 15.5%, Xerox 0.2% vs. 16.1%, Duke Energy 9.8% vs. 14.3%, and Tenet Healthcare 12.5% vs. 13.4%. It will be interesting to see how General Electric will perform over the next several years after executing its 1-for-8 reverse stock split on August 2, 2021.