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What does a split mean?

C

Czar

Lifer
In the stock market, I´v been following stocks for few months now and I just dont get this split thing, what does that mean for the company and for their stock price?
 
Splits are usually good events. Splits occur when the price of a stock reaches a high enough level that board members feel is out of reach of the average investor. To keep up the growth and expand the pool of potential investors, they institute a split.

They double the shares but half the price to make indicvidual shares more attractive to investors. You poition remains the same. Example, you have 100 shares of XYZ Corp @ $300 ($3000), a 2 - 1 split is approved. This means you now have 200 shares @ $150 (Still $3000).

Reverse splits are the opposite and usually signal trouble. For example KTEL recently have a 8 - 1 reverse split to try and get their share prices about $1 so they don't get delisted for the NASDAQ exchange.

Windogg
 
Windogg is on the money. The funny thing is that people always get excited about stock splits, and the stock price generally goes up when a stock split is expected or announced.... but in reality a split in and of itself does nothing to the value of the shares. Double the # of shares, devide the value in half = net effect of 0.
 
Just thought I'd add, not all splits are of the "2-for-1" variety. 3-for-2, 5-for-4, and other various multiples can also be found. The 2-for-1 type is certainly the most common, though.
 
I've been monitoring stocks for a while. Usually when there are a split, people starts a sell off. examples are aol...cisco...oracle..etc. its better you load up b4 the split and sell it the day before it splits or the day of the splits.
 
Depending on how you are charged for trading, a split can be a bad thing. If you are charged by the number of shares, you end up paying more in commissions when you buy or sell.
 
Great explanation windogg, but you made a minor miscalculation: 100 shares @ $300, and 200 shares @ $150 would be $30,000, not $3000.
 
Pretender: I guess the ole saying is true, "There are 3 types of people in this world, those that are good at math and those that suck!!!" My "minor" miscalculation leads to SEC investigations. I guess its a good thing I didn't put my accounting degree to use. 🙂

Windogg
 
You guys have summed it up well 🙂

Some companys NEVER split for the exact reason of not wanting average consumers buying their stocks. Thats why you see some stocks in the hundreds, sometimes thousands, of dollars a share range. Usually they are big banks or something similar.
 
to be able to recognize a split, you have to see the beaver very well from the correct angle.
 
Other reasons for a forward stock split (2-1, 3-2, etc):
- to prepare for an event will occur soon which will dramatically raise the stock price
- to enhance the perception of liquidity
- to put the share price in a more accepted trading range

Other reasons for a reverse stock split (1-2, 1-10, etc):
- to put the share price at a more accepted trading range (eg. $5 minimum for a NASDAQ listing, I believe)
- reduce volatility
- reduce number of outstanding shares and shrink float (obviously)
 
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