Rite Aid and Sirius XM Didn't Have to Follow Priceline
You have to give it up for Rite Aid and Sirius XM Radio .
The two stocks have blasted their way through new multiyear highs in recent days. Rite Aid broke through $5 and Sirius XM closed within a penny of hitting $4. You have to go all the way back to 2007 to find the last time that either company traded this high.
The numbers may not seem like much. We're talking about swapping a single share for a Mickey D's value meal. However, just a few years ago, even the Dollar Menu was too rich for their blood.
Rite Aid and Sirius XM were waffling about below the $1 mark, and the market exchanges were threatening to delist the stocks if they didn't execute reverse stock splits to get their stocks trading north of the buck.
Both companies refused. Improving fundamentals helped them break above the $1 mark, and it's been largely uphill after that.
Stock splits in any form are zero-sum games. Whether you own 100 shares of Sirius XM at $4 or 1,000 shares at $0.40, it's still the same $400. However, there's a psychological stigma to penny stocks. They tend to attract speculators instead of long-term investors.
Sirius XM and Rite Aid didn't have to go that route, but the same can't be said about priceline.com .
The fast-growing travel portal made waves a couple of weeks ago as it finally cracked through the $1,000 mark, but there's an asterisk to that milestone. Facing a dirt-cheap share price in light of the dot-com bubble, Priceline resorted to a 1-for-6 reverse split to artificially prop its share price higher.
In retrospect, Priceline didn't need it. Online travel continued to grow in popularity, and Priceline used the gimmicky success of its "Name your own price" site to acquire thriving international portals and boost its profitability.
Sirius XM and Rite Aid have also turned their fortunes around. They were profitless operations when their stocks were fetching pocket change. There was bankruptcy chatter on both fronts. However, both companies clawed their way back.
Sirius XM went big with Sirius merging with XM, shaving years off the path to profitability for what became satellite radio's monopoly. Rite Aid took a bit longer to turn that corner, but it's now put together four consecutive quarters or positive net income.
The companies aren't perfect. Both Sirius XM and Rite Aid still have billions in debt on their balance sheets. However, neither company is likely to go under anytime soon. They're not going to follow Priceline into declaring reverse splits. In the end, they got exactly what they wanted.
3 free stock ideas that also have no intention of splitting
The best investing approach is to choose great companies and stick with them for the long term. The Motley Fool's free report "3 Stocks That Will Help You Retire Rich" names stocks that could help you build long-term wealth and retire well, along with some winning wealth-building strategies that every investor should be aware of. Click here now to keep reading.
The article Rite Aid and Sirius XM Didn't Have to Follow Priceline originally appeared on Fool.com.
Longtime Fool contributor Rick Munarriz has no position in any stocks mentioned. The Motley Fool recommends and owns shares of Priceline.com. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
Copyright © 1995 - 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.
