Often, a company splits stock during times of growth, when it wants to make shares more affordable for retail (or noninstitutional) investors.
Stock splits happen for a variety of reasons. This creates opportunities for profit if shares can be simultaneously bought and sold in different markets for different prices, a process known as arbitrage. For the day trader, stock splits create an environment where cheaper shares lead to higher volumes of options trading, and thus more volatility in the stock price. Shareholders retain their full relative investment before and after the split.įor investors, stock splits make shares of the company more accessible as the shares become more numerous and cheaper.
For example, if one share were worth $900 at the time of a 3-for-1 stock split, the split would turn that one share into three shares each worth $300. Stock splits cause the total share count to increase and the stock price to go down.
You still own the same portion of the company, though stock splits may temporarily increase stock price volatility, or the probability of large swings in the stock price. Below we review what a stock split is, what to expect as a shareholder during a stock split and what a split means for the future of the company.Ī stock split is when a company decides to divide its existing shares by a certain ratio to create new shares, which then lowers the individual share cost. Stock splits make shares more affordable for retail investors, and more accessible for employees taking advantage of stock compensation plans. Tesla last split its stock in 2020, as did Apple, Amazon and Nvidia. If the split were to occur at that stock price, the resulting shares would trade at $288.17.
Tesla (TSLA) closed at $864.51 on Friday. It closed at $2,235.60 on July 15 and opened at $112.64 on the next trading day, July 18. Meanwhile, Google (GOOGL) completed its 20-for-1 stock split on July 15. GameStop (GME), which completed its 4-for-1 stock split on July 21, closed trading that day with shares costing $153.48 each and opened with them at $36.88 apiece on July 22, with four times as many shares in circulation. Tesla will be the latest large publicly traded company to split its stock, following Google and GameStop, which both completed stock splits in July. Tesla announced the final details of its stock split plan Friday afternoon, after shareholders voted to approve the plan at the annual shareholders meeting in Austin, Texas, on Thursday.
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