With several high-profile stock splits occurring in 2022 — including Google, Amazon, and Shopify — I’ve been reading a lot of misinformation lately about what stock splits are, how they work, and what opportunities they present for investors.
I’ve even seen TikToks claiming that we should expect Google to double this year thanks to the split on July 15.
I mean, it might — it’s friggin’ Google — but not because of the split. That’s just not how splits work.
So let’s clear things up and start from the beginning.
- What is a stock split?
- Why do companies do them?
- What typically happens to a company’s value after a split?
- Should you invest right before a stock split?
Let’s dive in!
What Is a Stock Split?
A stock split is when a company “splits” each of its existing shares into two, three, sometimes even 20 shares without affecting its market cap. The main purpose is to make each share more affordable to the average investor.
For example, let’s say the Bluth Company has 10 million shares outstanding and each share is trading for $1,000. That’s a market cap of $10 billion.
When your company’s share price hits $1,000 a pop.