Morgan Stanley analysts Todd Castagno and Clinton Chang argue that a reverse stock split merely reshapes a company’s share count without altering intrinsic value. By converting, for example, ten shares into one, the price per share rises tenfold, helping firms meet exchange minimums, avoid delisting, and appear more attractive to institutional investors.

The team warns that the price boost often masks underlying weakness. Their internal study shows median returns for firms executing reverse splits lag the broader market by 7.5% over six months and 4.6% over a year. Historically, only a handful of small‑cap names—most notably Madrigal Pharmaceuticals—have generated outsized gains.

Investors who built a basket of reverse‑split stocks outperformed the index, but the outperformance stemmed from a few big winners rather than the corporate action itself. Morgan Stanley suggests monitoring post‑split fundamentals and volume trends, as the move rarely improves long‑term performance unless the company resolves its core operational challenges.