Stock Split
When a company divides each existing share into multiple new shares, lowering the price per share while total value stays the same.
A stock split increases the number of shares outstanding by dividing each existing share. In a 2-for-1 split, every shareholder receives 2 shares for each 1 they held, and the price per share halves. Market capitalization is unchanged.
Companies split their stock when the price gets high enough to feel psychologically inaccessible to smaller investors. It also improves liquidity by bringing more shares into circulation at a lower unit price.
A stock split is a bullish signal in practice — it reflects management's confidence in the stock's continued appreciation. Stocks often continue to rise after a split announcement, though the split itself creates no fundamental value.
Example
Apple executed a 4-for-1 stock split in August 2020. Shareholders who held 25 shares at $500 ended up with 100 shares at $125. Total value: $12,500 — identical before and after the split. AAPL continued to appreciate after the split, reaching new highs.
Related Terms
Market Capitalization
The total market value of a company's outstanding shares. Market Cap = Share Price × Shares Outstanding.
BeginnerReverse Stock Split
When a company consolidates shares, reducing the count and raising the price per share proportionally. Often a warning sign.
IntermediateShare
One indivisible unit of ownership in a company. Your ownership percentage equals your shares divided by total shares outstanding.
BeginnerShares Outstanding
The total number of a company's shares currently held by all shareholders, including insiders and institutions.
Beginner