In pre-market trading, the share price of Zosano Pharma (NASDAQ:ZSAN) stock is incredibly soaring nearly 3,000%. But the total value of all of the outstanding shares of ZSAN stock has actually declined.
Why? That’s because Zosano implemented a reverse stock split that became effective today. With a reverse stock split, companies reduce the total number of their shares that can be traded.
As a result, the price of each share jumps, but the total value of the stock outstanding does not change much.
What Is Happening With ZSAN Stock Today?
In Zosano’s case, the company carried out a a 1-for-35 reverse stock split which became effective today. Consequently, beginning today, every owner of the company’s stock will only have one share for every 35 shares that they owned previously. So an investor who owned 350 shares of ZSAN stock yesterday will only have 10 shares of it today.
In the latter case, even if the price of Zosano’s stock jumps 3,000% today to $3.60, the total value of the investor’s shares will be $36 ($3.60 multiplied by the 10 shares), down from $42 at yesterday’s close. The stock closed at about 12 cents yesterday, and 12 cents multiplied by 350 is $42.
Zosano carried out the reverse split in order to stay in compliance with Nasdaq rules which generally prohibit companies’ share prices from staying below $1 for long periods of time.
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On the date of publication, Larry Ramer did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
