Reverse Stock Splits: Why Citigroup And Others Lag The S&P 500

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In a recent Barron’s article titled “Why Reverse Splits Are Rare,” 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.

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 (C) 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 are:

• Alcoa (AA): 10.4% vs. 15.5% 
• Xerox (XRX): 0.2% vs. 16.1%,
• Duke Energy (DUK): 9.8% vs. 14.3%.
• Tenet Healthcare (THC): 12.5% vs. 13.4%.

It will be interesting to see how General Electric (GE) will perform over the next several years after executing its 1-for-8 reverse stock split on Aug. 2, 2021.