What is a Stub
A stub stock is a security that is created as a result of a corporate restructuring such as a bankruptcy or recapitalization in which a portion of a company's equity is separated from the parent company's stock. Stub stocks may also be created by converting a distressed company's bonds into equity. The term stub may also be used to refer to the balance part of a check or receipt that is retained for record-keeping purposes or as proof of payment.
BREAKING DOWN Stub
Because the parent company's stock may retain most of the attractive characteristics of the original investment, stub stocks are not typically viewed as desirable by investors.
Stub stocks' prices are typically only a small fraction of the price of the securities from which they have been created. Their low prices reflect the uncertainty that market participants perceive regarding the recapitalized company's prospects. That uncertainty makes stub stocks highly speculative investments with significant positive return potential should the company's managers succeed in turning the firm around.