For example, if you had two shares in a company worth $10 each, you would now have one share worth $20. Our common and preferred shares were split by 50 on November 26, 2018. But there's also what's called a reverse stock split.Ī reverse stock split occurs when the quantity of outstanding shares is reduced and the stock's price is increased. Generally speaking, a traditional stock split is considered a good thing. As the reduced price makes a stock cheaper, more investors are able to purchase it, driving up the demand and, therefore, the price. The fact that the share price is so high that it must split its stock indicates to investors that the company has been successful and must be a good investment.Ī stock split also often increases the share price after its initial reduction.
Since stock splits don't add market value, much of it comes down to making the stock more attainable to everyday investors, and the behavioral benefits of that. There are many reasons why a company may consider a stock split. Overall, stock splits often signal to the market that the share price is increasing and the company's optimistic it will continue to do so in the future. There are just more pieces of the pie.įor new investors, an announcement of a stock split can signal a time to buy, since a lower price per share means buying at lower prices. The four shares are worth the same as the one share pre-split.įor existing shareholders, the result is the same - the total value of the shares remains consistent. But each share is then valued at a quarter of the original. Palo Alto was on its way to becoming the high-tech center it is today. The city’s population more than doubled during the decade, and the fruit orchards that characterized the town in the past were cleared to make way for highways, businesses and schools.
With it's 4-to-1 split, Apple grants you three additional shares, so you now have a total of four. The 1950s were a time of tremendous growth for both HP and the city of Palo Alto. For simplicity's sake, assume you have one share in Apple's stock. Let's say Apple ( AAPL) decides to do a 4-for-1 stock split as an example. Nor does the overall dollar amount of the investor's stake. But that doesn't mean the overall valuation of the company changes. When companies opt for a stock split, it increases the overall number of outstanding shares and lowers the value of each individual share.