If you dont know the stock market, $5 a share may sound like the stock of a good, healthy company. Actually, its usually seen as the mark of a company in deep trouble. Sun Microsystems, which has been mired below $10 a share for years, finally decided to do something about it. Earlier this month, Sun conducted a reverse four to one stock split.
The net result of this move, which was made in mid-November, has been to bring Suns stock price back up to, as of noon Eastern, Nov. 29, $20.89 a share. The move had been approved by Suns stockholders on Nov. 8.
While the companys net value of about $20 billion didnt change, its number of outstanding shares, 3.6 billion shares, dropped to about 900 million. At the same time, Suns stock sticker changed, temporarily from JAVA to JAVAD, to reflect its recent change.
"A higher stock price may help to increase investor interest, attract and retain employees and improve the companys ability to raise additional capital through equity offerings," said investment research company Glass Lewis & Co. analyst Eric Dao in a statement. Glass Lewis approved of Suns move.
Reverse stock splits are often seen as desperation moves by companies in dire financial circumstances. That is not the case, however, with Suns split. As Rick Aristotle Munarriz of the Motley Fool explained before the split was approved, "Im the last person to usually rally around reverse splits, but I see the logic here."
Munarriz continued, "Sun has seen its shares stuck in the single digits for more than five years now. Its starting to get its act together, posting three strong quarters. However, with 3.6 billion shares outstanding, its like tossing M&Ms into the Grand Canyon. The profits are amounting to just a few pennies on a per-share basis. Meanwhile, investors who are afraid of buying a low-priced stock are missing out on a company that has really turned the corner lately."
This is the case because stocks that sell for $5 and below tend to be ignored by institution investors and Wall Street research analysts. So it is that Sun, even though its been doing better business lately and is a $20 billion company, has been ignored by the major powers of the stock market. With this change, Sun hopes to get the investment and support it needs to continue to push its new technology partnerships with IBM and Dell and its OpenSolaris and Java advances to commercial success.
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