Are Paladin Energy shares really surging 900% today?

What's going on with this uranium stock today?

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Paladin Energy Ltd (ASX: PDN) shares certainly are catching the eye of investors on Thursday.

Depending on where you look, you may see the uranium miner's shares rising as much as 900%.

But is this really the case? Have its shares almost become a ten-bagger within the first hour of trade this morning?

Unfortunately for shareholders, the short answer is no. But what is actually going on?

What's going on with Paladin Energy shares?

Earlier this week, Paladin Energy shareholders were invited to vote on a reverse split.

This is what happens when a company reduces the number of shares on issue through the act of consolidation.

It is important to note that this is not the same as a share buyback. No shares are bought back through a reverse split. They are merely consolidated.

So, in the case of a 2-1 reverse split, if you owned 100 shares of a company with a $10 share price, after the split you would own 50 shares with a $20 share price. The value of your investment is unchanged at $1,000.

Paladin Energy's reverse split

On Tuesday, shareholders voted overwhelmingly in favour of a 10-1 reverse split. A total of 99.84% votes were cast in favour of the move.

This saw its total number of shares reduce from 2,984,656,146 units to 298,465,615 units this morning.

So, with Paladin Energy shares closing yesterday's session at $1.52, it meant that they opened today's session at $15.20.

Why the split?

The uranium miner's management revealed that the split was undertaken in order to give the company a share price more befitting of its status as an ASX 200 stock. It recently explained to shareholders:

The Consolidation is proposed to reduce Paladin's shares on issue to a level that better reflects the Company's position as an ASX 200 company and provides a share price that is more appealing to a wider range of international investors. The Consolidation applies equally to all shareholders and as such the shareholders proportional interest in the Company's issued capital will remain unchanged (other than minor variations resulting from the rounding of fractional shareholdings).

Prior to today, Paladin Energy shares had absolutely smashed the market with a stunning gain of almost 150% over the last 12 months.

This has been driven by the soaring uranium price which has been caused by optimism over nuclear power adoption and supply shortages of the chemical element.

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. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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