A stock split is when a company increases the number of its shares by issuing more to existing shareholders in a specific ratio. For example, in a 2:1 split, shareholders receive one additional share for every share they own.
How it works
Stock splits don’t change the total value of an investor’s holdings. If you own 100 shares worth $100 each, a 2:1 split gives you 200 shares worth $50 each, keeping the total value at $10,000. Lower prices per share can make the stock more attractive and boost market activity.
Why it matters
Stock splits often indicate company optimism and attract new investors. They can increase trading volume and market demand, helping companies maintain or enhance their stock’s appeal.
Apple as an example
Apple has executed several stock splits over the years, including 2:1 splits in 1987, 2000, and 2005, a 7:1 split in 2014, and a 4:1 split in 2020. These moves kept shares affordable and accessible to a broad range of investors.
Final thoughts
Stock splits are a strategic move to increase liquidity and attract attention. While they don’t alter the overall value of shares, they can positively influence market perception and demand. Understanding stock splits helps investors make informed decisions.