Will Sirius XM Radio Inc (SIRI) Follow Jamba, Inc. (JMBA)’s Lead?

Jamba, Inc. (NASDAQ:JMBA)Jamba, Inc. (NASDAQ:JMBA) investors had better not get too excited when they pull up a stock quote on Monday.

The shares may be trading in the low to mid teens, but it doesn’t mean that the smoothie chain operator has come through with a fivefold pop in value. The Jamba, Inc. (NASDAQ:JMBA) Juice parent is simply the latest company to execute a reverse split.

After today’s close, Jamba, Inc. (NASDAQ:JMBA) will complete a 1-for-5 reverse split. Every five shares will be exchanged for a single share worth five times as much. In theory, the move should prop up Jamba’s share price from $3 to $15, but the value of the company will remain the same. It’s a zero-sum game.

Executing a reverse split does have negative connotations, but that’s not entirely fair.

A lot of companies going this route are fading companies that have seen their share prices fall below the $1 mark. These penny stocks go through reverse splits to maintain exchange listing requirements, but the fundamentals are still a mess.

Jamba, Inc. (NASDAQ:JMBA) isn’t in that boat at all. It’s trading well above the listing minimums, and its stock hit a three-year high last week. Many chains going this route are losing gobs of money, but Jamba posted its first annual profit last year. Wall Street sees it building on its newfound profitability this year.

In short, Jamba’s the one making this call. It feels that having a share price in the double digits will attract institutional investors. It’s a big gamble, especially since many companies that have gone the reverse split route have been hit with sell-offs in the immediate aftermath.

Jamba, Inc. (NASDAQ:JMBA)’s story doesn’t seem all that different than that of Sirius XM Radio Inc (NASDAQ:SIRI). The satellite radio provider is also coming off a recent multiyear high. It did turn profitable after years of red ink. Its share price is also trading at $3 and change.

Sirius XM Radio Inc (NASDAQ:SIRI)’s former CEO Mel Karmazin didn’t want anything to do with a reverse split. It was on the table when the company was flirting with minimum listing requirements a couple of years ago, but Karmazin quickly shot down the chatter once Sirius XM Radio Inc (NASDAQ:SIRI)’s stock was safely out of the sub-buck cellar.

However, with more than 6.6 billion fully diluted shares outstanding, it will be a long time before Sirius XM Radio Inc (NASDAQ:SIRI) hits double digits as a $66 billion company organically. Aggressive share buybacks will help eat into the share count, but Sirius XM Radio Inc (NASDAQ:SIRI) may want to keep an eye on Jamba to see how it fares as a company on the rise making the reverse-split gamble.

If Jamba, Inc. (NASDAQ:JMBA) can hold to a price in the mid teens and the stock moves higher as it hits the seasonally potent smoothie-slurping summer quarter, Sirius XM Radio Inc (NASDAQ:SIRI) may have to reconsider its stance on reverse stock splits.

The article Will Sirius XM Follow Jamba’s Lead? originally appeared on Fool.com and is written by Rick Munarriz.

Longtime Fool contributor Rick Munarriz owns shares of Jamba. The Motley Fool has no position in any of the stocks mentioned.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

blog comments powered by Disqus
Insider Monkey Headlines
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 44 percentage points in 21 months Learn how!

Lists

The Top 10 States With Fastest Internet Speeds

10 Best Places to Visit in USA in August

Top 10 Cities to Visit Before You Die

Top 10 Genetically Modified Food In the US

15 Highest Grossing Movies Opening Weekend

5 Best Poker Books For Beginners

10 Strategies Hedge Funds Use to Make Huge Returns

Top 10 Fast Food Franchises to Buy

10 Best Places to Visit in Canada

Best Summer Jobs for Teachers

10 Youngest Hedge Fund Billionaires

Top 10 One Hit Wonders of the 90s

Fastest Growing Cities In America

Top 10 U.S. Cities for Freelancers

Top 9 Most Popular Free iPhone Apps

Top 10 Least Expensive Private Business Schools in the US

Top 15 Most Expensive Countries in the World – 2014

Top Businesses to Invest In

Top 5 Things You Might Be Doing Wrong With Your Business

Top 5 Strategic Technology Trends in 2014

Top Rags to Riches Stories

Parenting Behavior That Promotes Future Leaders

Top 5 Mistakes Made by Small Businesses

Top 5 Most Common and Potentially Devastating Financial Blunders

Top 5 Highest Paying Jobs for Web Designers

Top 6 Most Respected Professions that Also Pay Well

Top 5 Pitfalls Investors Should Avoid

Top 6 Lawyers and Policy Makers Under 30

Top 6 New Year’s Resolutions for Entrepreneurs

Top 7 Locations to Check in on Facebook

Top 5 Mistakes made by Rookie eBay Sellers

Top 7 eBook Publishers in 2013

Top 6 Health Industry Trends in 2014

5 Lessons for Entrepreneurs from Seth Godin

Top 5 Success Tips from Jordan Belfort – the Wolf of Wall Street

Best Master’s in Finance Degree Programs

Top 6 Earning Celebrities Over 50

The most expensive sports to play

Top 7 Earning Celebrities Under 25

Best 7 Online Courses to Take: Free Finance MOOCs

Top 6 Bad Habits that Promote Failure

20 Most Valuable Soccer Teams in the World in 2013

12 Most Expensive Countries for Foreign Students

Top 30 Most Influential Women in the World

Top 20 Most Expensive New Year Eve Shows

Top 5 Best Vocational Careers

Top 10 Jobs for 2014 by Salary Gain (Predictions)

Top 5 Digital Trends for 2014

Top 6 Things You Can Do To Increase Your Productivity

Top 9 Trending Smartphones in 2013

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!