A stock split doesn’t add any value to a stock. Instead, it takes one share of a stock and splits it into two shares, reducing its value by half. Investors who own a stock that splits may not make a lot of money immediately, but they shouldn’t sell the stock since the split is likely a positive sign.
Do you lose money if a stock splits? No. A stock split won’t change the value of your stake in the company, it simply alters the number of shares you own.
If the shares have become very expensive, an investor may be more comfortable buying lower cost shares post split. Stock splits are viewed as a positive event and an investor who buys before the split may see a stock price increase after the split due to more investors buying the stock.
A stock split is a corporate action in which a company divides its existing shares into multiple shares. For example, a stock split may be 2-for- 1, 3-for- 1, 5 -for- 1, 10-for- 1, 100-for- 1, etc. A 3-for- 1 stock split means that for every one share held by an investor, there will now be three.
S&P 500 Stocks Ripe For A Split
|Alphabet||( GOOGL )||1,516.65|
|Chipotle Mexican Grill||( CMG )||1,194.93|
There are no set guidelines or requirements that determine when a company will split its stock. Often, companies that see a dramatic rise in their stock value consider splitting stock for strategic purposes.
For example, let’s say a company offers a 4 -to- 1 stock split like Apple is doing, and their share price is $100 before the split. When the stock goes through its 4 -to- 1 split, every shareholder will have four times the amount of shares, but those shares will only be worth $25 each now.
For example, in a 1: 4 reverse split, the company would provide one new share for every four old shares. So if you owned 100 shares of a $10 stock and the company announced a 1: 4 reverse split, you would own 25 shares trading at $40 per share.
A stock split is a decision by a company’s board of directors to increase the number of shares that are outstanding by issuing more shares to current shareholders. A stock’s price is also affected by a stock split. After a split, the stock price will be reduced (since the number of shares outstanding has increased).
Key Takeaways. A company performs a reverse stock split to boost its stock price by decreasing the number of shares outstanding. A reverse stock split has no inherent effect on the company’s value, with market capitalization remaining the same after it’s executed.
Apple’s stock has split five times since the company went public. The stock split on a 4-for-1 basis on August 28, 2020, a 7-for-1 basis on June 9, 2014, and split on a 2-for-1 basis on February 28, 2005, June 21, 2000, and June 16, 1987.
Reverse stock splits are usually implemented because a company’s share price loses significant value. A 1 -for- 10 split means that for every 10 shares you own, you get one share. Below, we illustrate exactly what effect a split has on the number of shares, share price, and the market cap of the company doing the split.
Starbucks announces 2-for-1 stock split.
Calculating Split Ratios You receive one additional share in a 3:2 split. If the split is 5: 1, you have to add four additional shares to the right hand side of the ratio to make both sides even. You receive four additional shares for every one share you currently own.