Do stocks tend to go up or down after a split?
Splitting the stock brings the share price down to a more attractive level. The actual value of the company doesn't change but the lower stock price may affect the way the stock is perceived and this can entice new investors.
A stock split doesn't materially change the value of an investment, rather it just means a company is dividing its shares in such a way that each individual share is cheaper.
The short answer is it doesn't matter, and here's why. As mentioned earlier, a stock split doesn't change the value of the company or the value of an investor's holding. If you buy one share today or 10 shares after the split, you'll be investing the same amount of cash.
Stock splits at their most basic level come down to making the shares easier to buy and sell, which increases liquidity. This is best explained by example. Prior to its split in 2022, Amazon.com (AMZN) shares traded hands at $2,447. After its 20-for-1 stock split, shares traded for $122 ($2,447/20).
Remember that a stock split—or a reverse stock split—does nothing to change the value of a company. How a stock performs in the long run will depend on multiple factors, not on how its shares are split.
It's basically a draw, and the value of your investment won't change. However, investors generally react positively to stock splits, partly because these announcements signal that a company's board wants to attract investors by making the price more affordable and increasing the number of shares available.
You have two basic options. You can buy the shares beforehand while the price per share remains high. You will likely hope to profit from a rise in the share value with the excitement surrounding the stock. You can also elect to wait until after the split and then take advantage of the lower price per share.
| Company (ticker) | Analysts' consensus recommendation score | Analysts' consensus recommendation |
|---|---|---|
| ServiceNow (NOW) | 1.49 | Strong Buy |
| Assurant (AIZ) | 1.50 | Strong Buy |
| Howmet Aerospace (HWM) | 1.50 | Strong Buy |
| Insulet (PODD) | 1.50 | Strong Buy |
The split may elicit additional interest in the company's stock, but fundamentally investors are no better or worse off than before, since the market value of their holdings stays the same.
Public companies are always happy when their stock prices rise.
Are stock splits bullish?
Some analysts say stocks that split tend to outperform the broad market S&P 500 index in the 12 months following the split announcement. Others say a stock split isn't a reliable indicator of whether a stock's value will increase or decrease over time.
Are Stock Prices Split Adjusted? Yes, stock prices are adjusted for stock splits. The adjustment is based on the multiple of the split. For example, in a 7-for-1 split, the number of shares will multiply by 7, but the share price will divide by 7.
Answer and Explanation: The correct answer is b. Lower the trading price of a stock into a more acceptable trading range.
It doesn't matter if you own a stock before or after a split because the value won't change. A stock split is purely a mathematical decision that does not reflect the valuation of a company. If a company is going to perform well, it will before or after a split. If it won't, then it won't even after a split.
From time to time, stock splits are followed by a bump in stock performance—but not always. Is the split worth it? – Stock splits have no tangible impact on a company's total value—they simply create more shares at more affordable prices.
For shareholders, the total dollar value of their investment remains the same because the split doesn't add real value. The most common splits are two-for-one or three-for-one. A stockholder gets two or three shares respectively for every share held.
It's important to note, especially for new investors, that stock splits don't make a company's shares any better of a buy than prior to the split. Of course, the stock is then cheaper, but after a split the share of company ownership is less than pre-split.
Splits are often a bullish sign since valuations get so high that the stock may be out of reach for smaller investors trying to stay diversified. Investors who own a stock that splits may not make a lot of money immediately, but they shouldn't sell the stock since the split is likely a positive sign.
A stock split will increase the number of shares outstanding while a reverse stock split will decrease the number of shares outstanding. When the company issues a stock split, the par value of the common stock also changes. However, overall equity for the company will remain unchanged.
Disadvantages of a Stock Split
The company wanting to split their stock must pay a great deal to have no movement in its over market capitalization value. A stock split isn't worthless and it doesn't impact a company's fundamental position. It will therefore not create additional value.
Should I sell my stock before a reverse split?
Selling before a reverse stock split is a good idea, but selling after the reverse stock split is not. Since you can sell before and after a reverse stock split, selling during one is optional. The main advantage of selling before the reverse stock split is that you don't have to wait around for it to happen.
In a 1-2 reverse stock split for a stock trading at $2, for example, you would receive 1 share for every 2 shares you owned after the split and the stock price would double to $4. Again, the total value of your investment would not change due to the stock split.
| Stock | Implied Upside* |
|---|---|
| Meta Platforms Inc. (META) | 25.8% |
| Tesla Inc. (TSLA) | 4.5% |
| JPMorgan Chase & Co. (JPM) | 9.6% |
| Exxon Mobil Corp. (XOM) | 12.0% |
Dividend stocks are considered safer than high-growth stocks, because they pay cash dividends, helping to limit their volatility but not eliminating it. So dividend stocks will fluctuate with the market but may not fall as far when the market is depressed.
- Apple Inc. (ticker: AAPL)
- Enterprise Products Partners LP (EPD)
- Johnson & Johnson (JNJ)
- JPMorgan Chase & Co. (JPM)
- Prologis Inc. (PLD)
- Southern Co. (SO)
- Target Corp. (TGT)
