What happens"EXACTLY"when a stock splits? Why is it such a good thing?

Answer 1

It's when the company seeks to spur purchases of its stock. They will double the shares of stock, and double the holdings of the existing stockholders, while at the same time halving the price.

I have seen as much as a 10 to 1 split, where the company started with 1 million shares, 900,000 shares distributed. They then expanded to 10 million, jumping everyone that holds 1 share to 10 shares.

The move took the 100,000 open shares to 1 million open shares, took the $140 a share price to $14 a share.

With price at $14 a share - they we able to sell another 900,000 shares quickly, bringing in a flush of $12.6 million for business expansions and development

Answer 2

It simply means that at some point in time each outstanding share is exchanged for multiple shares. So if you own 100 shares of XYZ stock and it does a 2-for-1 split you now own 200 shares. If the price was $208 per share before the split then the price should be about $104 after the split.

The idea is to keep the stock affordable to more people. But I swear some individual investors are so stupid that they think a stocks has become a better value after a split.

Answer 3

If a stock splits 2 for 1, then on the effective day your stock shares are doubled...if you owned 100 shares worth $100 a share, you will own 200 shares worth $50 a share. For some reason, this often causes a small bounce in the price of a share. Perhaps some investor s think the stock will now be more attractive to other investors and they are willing to pay more than $50 a share to purchase the stock..

Companies like to keep their stock in an affordable range...perhaps $25 to $80 a share. Small investors tend to stay away from $100+ per share stocks because buying a round lot of 100 shares will cost $10,000+.

For some reason the

Answer 4

if the stock splits two-for-one, you'll get twice as many shares, but the stock price will instantly be half what it was.
You will have exactly the same amount of value in your stocks.
The only benefit is that stocks tend to rise after a split (historically speaking).
The reason is that the stock is "cheaper" so more people might buy it. Also, stocks which split tend to be healthier stocks. A junky stock is not likely to split.

Answer 5

Stock split does not add any value fundamentally to the Investors in Long term, However as number of shares Doubled (which can also be done via Bonus shares by companies and bonus shares do have fundamental value for Long term Investor unlike stok split GIMMICK), Overall liquidity increases and due to reduction in stock price, small retail investor tend to buy it (Perceptual Reason, Nothing Fundamenta) and this some times lead to surge in prices in SHORT TERM. Never buy a stock for long term on the news of stock split!!! It could be a GIMMICK by management. However, stock bonus is a much better option; Please refer to good investment guide by Graham to understand the clear difference and value.

Answer 6

its not ALWAYS a good thing but a recent one is Brazilian Petroleum Corp (PBR) their price was over $120 and it recently did a 2-1 split meaning all the shares u have doubled and the price is slashed in half. Its a gamble sometimes it works (in PBR it did) others like Fred's it didn't work out so well high around $35 and is now in the high $13 range.

Now a REVERSE split is ALWAYS bad. It means the company is having trouble growing and is trying to make their stock look good.

Answer 7

The company issues an extra share of stock for each share of stock owned by stockholders. Since the value of the company hasn't changed from time before the stock split to after the stock split, the value of each share after the split is worth one-half what it was worth before the split (in a 2 for 1 stock split). Since there are twice as many shares, the earnings per share in now one-half what it was before the split. After the split, your holding in the company is not changed from before the split. You have twice as many shares but each is now worth one-half of what it was worth before the split.

Stock splits are a good indication that the company expects higher stock prices in the future. Companies don't want low stock prices because the lower the price, the lower is the public's perception of a company struggling with its finances. Another benefit of splitting a stock is to position it in a price range that more investors can afford. Companies realize that by increasing stock ownership, the company can reduce volatility in the stock's price.

Answer 8

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What happens"EXACTLY"when a stock splits? Why is it such a good thing?

Answer 9

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Answer 10

Think of it like changing a $100 bill versus changing a $20 bill.

After you change the hundred for 5 twenties, you still have the same amount of money.

However, there are more people that can change a twenty than a hundred.

It increases stock trade volume.