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Understanding Stock SplitsOn the back of $AAPL announcing a 4-1 stock split, I figured I would put out a thread discussing what a stock split is and how it impacts price per share.
Today $AAPL announced a 4-1 stock split! Let's dive into what this means.
THREAD
Current Price of $AAPL: $402.50
A stock split has no impact on the value of a company. The only reason a company does a stock split or reversal is to make shares look more attractive to retail investors.
A stock split has no impact on the value of a company. The only reason a company does a stock split or reversal is to make shares look more attractive to retail investors.
Many new investors these days look at the price per share as if it has an impact on value.
At $AAPL share price they have a market cap value of $1.67B.
Market Cap is calculated by taking the price per share x outstanding shares.
At $AAPL share price they have a market cap value of $1.67B.
Market Cap is calculated by taking the price per share x outstanding shares.
For example, shares of $AMZN trade at a price per share over $3,200 and have a market cap greater than $1.5B.
However, $AAPL has a higher valuation, but a lower stock price.
Do not equate stock price with value.
However, $AAPL has a higher valuation, but a lower stock price.
Do not equate stock price with value.
If you invest $6,400 in $AMZN you would have 2 shares. If you invested $6,400 in $AAPL you would have about 16 shares.
Regardless, you still have $6.4K invested. If both stocks increase 10%, you will see the same gain in your account with 2 shares of $AMZN or 16 shares of $AAPL.
Regardless, you still have $6.4K invested. If both stocks increase 10%, you will see the same gain in your account with 2 shares of $AMZN or 16 shares of $AAPL.
Since new investors do not fully understand this, company's do stock splits to make shares look "cheaper," with the hopes to boost more interest and buying which drives share prices.
These days investors can buy partial shares, but $AAPL decided to make the change regardless.
These days investors can buy partial shares, but $AAPL decided to make the change regardless.
Due to the split, a new investor with $300 to invest, may have not wanted to invest in a partial share of $AAPL, they will now have the opportunity to buy roughly 3 shares of $AAPL.
The market cap will remain the same as the company will increase the number of share outstanding.
The market cap will remain the same as the company will increase the number of share outstanding.
Shareholders of $AAPL today with 100 shares, when the stock split takes place you will have 400 shares.
Today: 100 shares at $402.50 = $40,250
Post Stock Split: 400 shares at $100.625 = $40,250
As you can see, your value does not change.
Let me know if you have questions!
Today: 100 shares at $402.50 = $40,250
Post Stock Split: 400 shares at $100.625 = $40,250
As you can see, your value does not change.
Let me know if you have questions!
