A run-up in the stock market can cause share prices for many stocks to reach eye-popping levels. When investors see high share prices, they often wonder whether the companies will split shares, thus putting more shares on the market but at a lower price.
When a company splits its shares in two, the company's overall value remains the same, but a shareholder will double the number of shares in their portfolio, and those shares will trade at half the previous price. For example, a person who holds one share of a company at $100 per share will now hold two shares at $50 apiece. Shares don't always split in exactly two—in some cases, companies will perform a 3:1 split or divide shares even further.
Let's look at some familiar stocks that haven't split, even as share prices grew. We'll then examine the reasons why a company would choose to split its shares of stock or choose not to.
Stocks That Don't Split
Here are a few names you might be familiar with that choose not to split their stock in recent years.
Amazon (AMZN)
From late 2017 through early March 2021, the price for Amazon shares has roughly tripled. Despite the rapid price rise, there are no signs that a split is imminent. Asked in 2017 whether he'd consider a stock split, then-CEO Jeff Bezos did not rule it out completely, but he also didn't signal an intention to do so anytime soon.
It's been more than 20 years since Amazon last split its stock, but back in the late 1990s, it was more common. Amazon split its stock three times in a 15-month span in 1998 and 1999.
Booking Holdings (BKNG)
Formerly known as Priceline, this travel service company was trading above $2,000 per share in March 2021. This high price is at least in part due to a reverse stock split in 2003, in which shareholders received one share for every six they owned.
The reverse stock split came after a major market downturn that slammed the company's share prices. Thus, there may be some institutional wariness about splitting and allowing prices to get too low. There's been no indication from management that a stock split will be happening anytime soon.
Netflix (NFLX)
From 2016 through early March 2021, Netflix stock prices have increased from less than $100 to more than $500. At that price, you may think Netflix may be due for a split. While Netflix may choose to split its stock again, the company is only seven years past its most recent stock split—a whopping 7-for-1 split in 2015.
Note
There is some belief that Netflix could split again, but there is also some skepticism as to whether the company will continue to add subscribers and see revenues rise at the same rate as it has in recent years.
Berkshire Hathaway (BRK)
Warren Buffett's company is perhaps the best example of a company that rarely shows a desire to split its shares of stock. Since 2018, Class A shares have hardly dipped below $300,000 apiece. You read that right—a stock that trades well into six figures.
However, while Class A shares trade for the price of a house in some markets, Class B shares are more available to everyday investors. In early April 2022, Class B shares were trading around roughly $350.
Class B shares don't have the same voting rights as Class A shares and were essentially created as a compromise between Buffett, who did not want to split shares, and investors, who wanted to be able to purchase shares at a reasonable price. The company split Class B shares 50-1 in 2010 but has never split Class A shares.
Why Split Stock Shares?
One of the main reasons a company might split its stock is to expand its shareholder base. A split will make shares more affordable for more people, and some companies prefer to avoid seeing their shares concentrated on a small group of people. When shares are spread among more people, an individual can sell most or all of their shares without it having a meaningful impact on the share price.
More shares also allow for greater liquidity—shares become easier to buy and sell when there are more on the market. When shares become very expensive, the spread between the bid price and the ask price can be quite large, thus making trading stocks harder.
Note
Some companies will split shares simply as a way of getting people to believe share values are rising. An investor may see a company split shares and assume that the company is doing quite well and is worth investing in. This is another reason why thoroughly researching your investments is important.
Why Wouldn't a Company Split Its Stock?
A small study found that, on average, markets react positively to stock splits, but that doesn't mean splits have a real impact on the intrinsic value of the company. Unless the stock is facing liquidity issues, there may not be any compelling reason for a company to split its stock.
Some companies prefer to avoid splitting because they believe a high stock price gives the company a level of prestige. A company trading at $1,000 per share, for example, will be perceived as more valuable even though the firm's market capitalization may be the same as a company whose shares trade at $50.
Potential Negative Impacts
In some cases, stock splits can have a negative effect. Smaller companies who split their stocks may have stock prices fall too low. If a stock split is combined with another financial event that further depresses prices, there are two major risks: a negative psychological impact on traders watching the price fall so rapidly and, in the worst-case scenarios, the stock price could fall below a stock exchange's requirements for listing.
The Nasdaq, for example, wants stocks on the exchange to cost at least $1. If a stock falls below that price and stays below $1 long enough, it may get delisted. After getting delisted, there could be liquidity issues, and brokerages could choose not to trade the stock anymore—not to mention any psychological issues traders may have with a stock losing its exchange status.
Decreasing Need for Stock Splits
In previous decades, it was impossible to become a shareholder of a company unless you obtained enough money to buy at least a single share. However, that's no longer the case. There are many new trading platforms and services that allow investors to purchase fractional shares. Some traditional brokerages have also followed suit and begun allowing their retail investors to buy fractional shares.
Another factor is the increasing popularity of mutual funds and exchange-traded funds (ETFs). These funds give investors exposure to stocks without necessarily owning full shares outright.
Frequently Asked Questions (FAQs)
Is there a downside to stock splits?
While stock splits can make the shares more affordable for investors, some negatives come along with a company splitting its stocks. Once the stocks are split, records will show that the price of the stocks was cut in half.
This isn't an accurate representation of how much the stock is worth since it was split and not the result of market conditions. This, combined with added risks that come with low-priced stocks, impacts the volatility of the stock, making it a riskier investment compared to when the stock price was simply high.
How do you know if a company will split its stock?
A company will make a formal, public announcement when they plan stock splits. During this announcement, they will inform investors of all the details, including the split ratio, the record date, the payment date, and the date the split will be effective (or the ex-split date). Investors have until the record date to own the stock for it to be eligible to be split.
The payment date comes after the record date, and this is when those shareholders will be given their stock split shares. The ex-split date, also called the effective date, is when trading of these new shares can begin.
FAQs
Some companies prefer to avoid splitting because they believe a high stock price gives the company a level of prestige. A company trading at $1,000 per share, for example, will be perceived as more valuable even though the firm's market capitalization may be the same as a company whose shares trade at $50.
Why do companies sometimes split their stock multiple choice question? ›
Companies often choose to split their stock to lower its trading price to a more comfortable range for most investors and to increase the liquidity of trading in its shares. Most investors are more comfortable purchasing, say, 100 shares of a $10 stock as opposed to 1 share of a $1,000 stock.
Is it good for a company to split stock? ›
While a stock split doesn't change the value of your investment, it's generally a good sign for investors. In most cases it means that the company is confident about its position going forward, and that it wants to seek additional investment.
What are the pros and cons of stock splits? ›
Pros and cons of stock splits
- Pro: Makes shares more affordable. ...
- Pro: May trigger renewed investor interest. ...
- Con: Could trigger volatility. ...
- Con: Does not add any new value: At least in the short term, the total value of your assets for the stock in question remains the same.
A stock split can make the shares seem more affordable, even though the underlying value of the company has not changed. It can also increase the stock's liquidity. When a stock splits, it can also result in a share price increase—even though there may be a decrease immediately after the stock split.
Why hasn t Amazon split? ›
One reason for Amazon to not do any stock splits is that fractional share buying has become the norm in recent years, which is why there is less need for regular stock splits from well-performing stocks.
Why is it better to buy stock before it splits? ›
Any decision you make — buy, hold or sell — is not likely to have a much different outcome if you make it just before or just after the split. Since a stock split is announced prior to being executed, any post-split bump that the market expects is baked into the price by the time the split actually occurs.
Are stock splits meaningless? ›
A finance professor will likely tell you that splits are totally irrelevant—yet companies still do it. Splits are a good demonstration of how corporate actions and investor behavior do not always fall in line with financial theory.
How many times has Apple stock split? ›
Apple's stock has split five times since the company went public. The stock split on a 4-for-1 basis on August 28, 2020, a 7-for-1 basis on June 9, 2014, and split on a 2-for-1 basis on February 28, 2005, June 21, 2000, and June 16, 1987.
Do stocks usually go up after a split? ›
Although the intrinsic value of the stock is not changed by a forward split, investor excitement often drives the stock price up after the split is announced, and sometimes the stock rises further in post-split trading.
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.
Are stock splits good long term? ›
A stock split isn't a reliable indicator of whether a stock's value will increase or decrease. Of the five stocks analyzed, only Amazon (NASDAQ:AMZN) outperformed the S&P 500 three months after its stock split, but it also fell behind over the long term.
What are the disadvantages of splits? ›
Typically, you are confined to performing one exercise for one to four sets on each body segment. Any more could make the exercise overly strenuous or time-consuming. As you improve, specific muscles may require more than 48 hours to heal in between workouts.
What are the disadvantages of doing splits? ›
Muscles, hamstrings, and joints are all involved, and could be at risk for injury. “An athlete can tear the soft tissues or injure joints, making it difficult to recuperate and continue training,” says Aoki.
What happens to your money when a stock splits? ›
Although the number of shares outstanding increases during a stock split, the total dollar value of the shares remains the same compared to pre-split amounts, because the split does not add any real value. When a stock split is implemented, the price of shares adjusts automatically in the markets.
How many times has Amazon stock split? ›
Amazon stock (symbol: AMZN) underwent a total of 4 stock splits. The most recent stock split occured on June 6th, 2022. One AMZN share bought prior to June 2nd, 1998 would equal to 240 AMZN shares today.
What is the highest Amazon stock has ever been? ›
The all-time high Amazon stock closing price was 186.12 on July 08, 2021. The Amazon 52-week high stock price is 170.83, which is 78.3% above the current share price. The Amazon 52-week low stock price is 81.43, which is 15% below the current share price. The average Amazon stock price for the last 52 weeks is 117.51.
Has Tesla stock ever split? ›
Tesla stock split timeline
The Tesla stock split was rumored for many months in advance. On August 4, 2022, Tesla's shareholders approved the 3-for-1 stock split during the company's annual meeting.
Is Amazon a good stock to buy since the split? ›
Amazon (NASDAQ:AMZN) stock is a good buy now because its stock split could provide short term momentum, it has one of its lowest valuations in recent years, and AWS remains a great business with a lot of growth left.
Do investors like stock splits? ›
“Investors tend to like splits because it signals that they are invested in a thriving company.” Keep reading to learn how stock splits work, how it affects you as a shareholder, and whether it's worth investing in a company after a stock split.
There are no set guidelines or requirements that determine when a company will split its stock. Often, companies that see a dramatic rise in their stock value consider splitting stock for strategic purposes.
What would Apple stock be worth if it never split? ›
How Much Would Apple Stock Be Worth If It Never Split? If Apple never split its stock, a single share would have been worth around $1,800 as of 2021.
How much will Apple stock be worth in 10 years? ›
The Apple stock forecast 2030 from CoinPriceForecast, as of 4 January 2023, suggested the stock could hit $165 by the end of this year, and move up to $235 by the end of 2025. Where will Apple stock be in 10 years?
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How much will Apple stock be worth in 10 years?
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| Overnight fee time | 22:00 (UTC) |
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Wal-Mart has split its stock 11 times since going public in 1970.
How often do stocks go up after a split? ›
Since 1980, the shares of companies that do stock splits are typically up 25% a year later, compared to 9% for the broader market, according to a recent study by Bank of America. They also outperform three and six months out, as you can see in this chart.
Do stock prices drop after a split? ›
In theory, a stock split has no impact on a company's stock value. Think about the pizza analogy from above. As a result of a stock split, you get more shares at a lower price each, but your net investment value stays the same. However, after a stock split occurs, the price of the stock sometimes jumps.
What stocks split the most? ›
So, what stock has split the most in history? The best known stock that has split the most is Apple.
Has Amazon stock ever split? ›
Amazon stock (symbol: AMZN) underwent a total of 4 stock splits. The most recent stock split occured on June 6th, 2022. One AMZN share bought prior to June 2nd, 1998 would equal to 240 AMZN shares today.
When should you buy stock before a split or split? ›
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.
