The net effect of a split for investors is that they receive an additional share(s) for every share they own, but the value of each share is now reduced by the factor of the split. In the same way, when a company splits its stock the number of shares the investor owns has increased by the multiple of the split, but the value of those shares remains the same (apart from normal market movement). You wind up with more bills in your wallet, but the intrinsic value of those bills is the same. A Stock Split Does Not Affect a Stock’s Intrinsic Valueįor investors a stock split is sort of like asking somebody to give you change for a $20 bill. This article will also explain the idea of a reverse stock split and the effect of a stock split on investors looking to short sell a stock. This article will help investors understand stock splits, why companies issue them, and whether or not they offer value to shareholders. For example, in a 2-for-1 split, a shareholder that held 1,000 shares priced at $100 would have 2,000 shares with each share priced at $50 after the split.
As the number of available shares change, the market capitalization of the company remains the same and dilution does not occur. Stock splits give investors more shares of a stock without increasing the intrinsic value of the stockĪ stock split is an adjustment in the total number of available shares in a publicly-traded company.
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