Stock Split

A stock split divides each existing share into multiple new shares at a proportionally lower price. In a 2-for-1 split, each share becomes two shares at half the price. In a 4-for-1 split, each share becomes four at one-quarter the price. The total value of your holdings remains exactly the same.

Stock splits do not change anything fundamental about the company. Market capitalization, earnings, revenue, and fair value are all unchanged. If you owned 100 shares at 400 dollars (40,000 dollars total) and the stock splits 4-for-1, you now own 400 shares at 100 dollars (still 40,000 dollars total).

Why Companies Split

Companies typically split their stock when the share price has risen to a level that may discourage smaller investors. A lower per-share price makes the stock more accessible, especially for investors who buy whole shares rather than fractional shares. It also increases trading liquidity because more shares change hands at a lower price.

Reverse splits work in the opposite direction: multiple shares are combined into one at a proportionally higher price. Companies do this when their share price has fallen so low that it risks being delisted from an exchange or signals distress to investors. Reverse splits are generally a negative signal.

When evaluating a stock's valuation history, always adjust for splits. A stock that traded at 600 dollars before a 4-for-1 split is equivalent to 150 dollars post-split. Most financial data providers adjust historical prices automatically, but it is worth verifying.