What is a stock split, and how does it affect my investment?
A stock split is a corporate action that increases the number of outstanding shares of a company's stock by dividing each existing share into multiple shares. For example, in a 2-for-1 stock split, every existing share of stock would be split into two new shares, effectively doubling the number of outstanding shares. The total value of the shares held by an investor does not change as a result of a stock split, but the price per share will adjust accordingly.
The primary effect of a stock split is to lower the price per share, which can make the stock more accessible to a wider range of investors. In theory, a stock split should not have any significant impact on the fundamental value of a company, as it does not change the underlying financials of the business. However, stock splits can have a psychological effect on investors. They may perceive the lower price per share as an indication that the company is more affordable and may attract more buyers. Additionally, some investors may view a stock split as a positive signal that a company is doing well and that management is confident in its future growth prospects.