When a company such as PBMD conducts a reverse share split, it is usually because shares have fallen to a lower per-share pricepoint than the company would like. This can be important because, for example, certain types of mutual funds might have a limit governing which stocks they may buy, based upon per-share price. The $5 and $10 pricepoints tend to be important in this regard. Stock exchanges also tend to look at per-share price, setting a lower limit for listing eligibility. So when a company does a reverse split, it is looking mathematically at the market capitalization before and after the reverse split takes place, and concluding that if the market capitilization remains stable, the reduced share count should result in a higher price per share.

Looking at the PBMD split history from start to finish, an original position size of 1000 shares would have turned into 300 today. Below, we examine the compound annual growth rate — CAGR for short — of an investment into PBMD shares, starting with a $10,000 purchase of PBMD, presented on a split-history-adjusted basis factoring in the complete PBMD split history.