What conditions usually exist within a company that causes their stock to split?

Answer 1

Companies often split their stock to make it more affordable. Not many people can afford a $500 stock but if they did a 10 for one split each share would only cost $50. Someone that bought a share for $500 would now have 10 shares each worth $50. The total value doesn't change but there are now more potential customers for the stock.

Answer 2

There is another side to it and that is volatility. Remember, the ultimate value of the company doesn't change. A $1billion company will still be worth $1billion...for an instant.

But, with more shares there is the likelihood that there will be more trading. That can make owning the stock more risky in some cases. On the other hand, if you want to get out, there are more potential buyers.

If you want a nice, stable,stock and you already own it, then you may not want it to split. Look at Berkshire. They could easily do a 1000 to 1 split and it would still be a hundred dollar stock. But, by being a $108,000 per share they ensure there is very little turnover in the stocks. Consequently, I think they encourage investors to stick with them through the long haul.

That said, I've been the beneficiary of a 2 for 1 split where I eventually sold half and the remaining half was still worth more than the original investment.

It just depends.

Answer 3

Companies with high stock prices will also split their shares if they need more shares of stock in their treasury for employee stock options. Example: with 2 million shares in the treasury they award 1 million in stock options @ $50. After a 2 for 1 split, they have 4 million shares in the treasury and they still award 1 million shares in options but now at $25.

Answer 4

Conditions is the company is doing good and has good earnings prospects for the future and their stock price is going up to levels where small investors cannot participate in their stock at the exchanges.