Investors may be wondering what’s going on with the FAR Limited (ASX: FAR) share price on Friday.
This morning, trading platforms show that the oil and gas explorer’s shares are up a whopping 12,000% to $1.32.
To put that in context, if you invested $10,000 into an ASX share and it gained 12,000%, your investment would be worth a cool $1.2 million.
Is the FAR share price actually minting millionaires today?
The answer to this question, unfortunately, is a resounding no.
The reason the FAR share price is showing as being up 12,000% on Friday is that it has now completed its share consolidation.
Share consolidations are not very common on the Australian share market. In fact, share splits are far more common.
A share split is often undertaken by a company when they want to boost share liquidity or make share prices more attractive. For example, Berkshire Hathaway has resisted calls for years to undertake a share split. As a result, you need a massive US$417,800 to buy a single Berkshire Hathaway Class A share. This is unattainable for most investors.
Pushpay Holdings Ltd (ASX: PPH) is an example of a company that has split its shares recently. It did this to boost liquidity.
It is important to note that although the share price may change during a split, the value of a holding does not. If you had 1,000 shares at $1 per share (total value of $1,000), you would have 2,000 shares at 50 cents per share (still with a total value of $1,000) following a 2-1 split.
What is FAR doing?
FAR has undertaken a share consolidation or reverse share split to bring its share price up to a more tradable level.
Prior to the consolidation, the FAR share price was trading at 1.1 cents. This means that a move to 1.2 cents would result in a 9% gain and vice versa if it went the other way. These sorts of swings are not ideal for investors and it appears as though management felt the same way.
As a result, it has consolidated the issued capital of FAR on the basis of one share for every one hundred shares.
This means that if you owned 100 shares yesterday, you would now own a single share at the current FAR share price. And except for intra-day movements, the value of your holding would have remained the same.
The post Is the FAR (ASX:FAR) share price really up 12,000% today? appeared first on The Motley Fool Australia.
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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and has recommended PUSHPAY FPO NZX. The Motley Fool Australia owns shares of and has recommended PUSHPAY FPO NZX. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.
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