The company’s value on paper doesn’t change, but this move can improve the company’s liquidity – how fast and easy a trader can trade. A company splits (or combines) its shares to make them less or more expensive. Reverse stock splits do the opposite by combining shares, effectively raising the price of a single share.īut at the very heart of stock splits is psychological reasoning. When Amazon announced its stock split in 2022, a shareholder owning 100 shares pre-split would own a whopping 2,000 shares post-split.
And in the case of Tesla you owned 500 shares post-split for every 100 shares held pre-split. If you owned 100 shares of AAPL prior to the split, you owned 400 shares afterwards. It maintains a company’s current value yet divides existing shares, making them smaller and less expensive.įor example, when Tesla rose about $2,000 per share and Apple above $500 per share, management teams at both companies decided to split their stocks: 5:1 and 4:1 respectively.
What Is A Stock Split?Ī stock split is all about affordability for shareholders – at face value. So, what exactly is a stock split? And why do companies split their stocks? Well, it’s all a part of trading basics. In other words, selling your shares of a stock prior to a split isn’t always the best decision – unless, of course, you’re not well-positioned to continue holding the stock. That said, many stocks have shown strong performance after a split. If you have a share of stock currently trading at $100 and it splits into four shares at $25 each, it’s the same as having an entire uncut pizza and cutting it into four slices – you still have the same pizza. On the face of it, a stock split shouldn’t really matter – regardless of the current economy. Stock splits can increase affordability, meaning a broader range of investors may find the stock more attractive – thereby increasing demand.
When a board of directors declares a stock split, it’s a vote of confidence that the company’s share value will continue to increase. Look no further than the 5.5% pop in Amazon shares when it announced a 20:1 split after the market close on March 9. Should I Buy A Stock Before It Splits? Investors and companies alike view stock splits as positive events.
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