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Our Take

E*Trade’s decision to implement the reverse stock split comes from the opinion that investors are undervaluing the stock and that a depressed stock price is preventing new investors from buying. Since a reverse split raises a stock's per-share price by eliminating a percentage of outstanding shares, it consequently gives an impression that the demand for the stock has picked up, thereby prompting momentum investors to purchase shares.

Moreover, even the recent improvement in E*Trade’s earnings have not been able to attract investors, as a result of which the stock price of E*Trade continues to stagger at very low levels on Wall Street. This also reflects that the stock holds the risk of being de-listed in the market, which in turn justifies E*Trade’s reverse stock split decision as a quick rectification measure.
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