Apple and Tesla are doing stock splits right now. Should you buy?
If you’ve ever wanted to own a piece of Apple or Tesla, you’re in luck. Both companies are doing stock splits that will be completed by Monday, which means their shares will become more plentiful — and affordable.
firm financial footing and expects to maintain or exceed the gains it has seen in the past.” data-reactid=”33″>A stock split is often a good sign for shareholders. It suggests that a company is on firm financial footing and expects to maintain or exceed the gains it has seen in the past.
Read on to learn about what a stock split is, what it means for investors and whether you should buy stock before or after a split is completed.
What does it mean when a company splits its stock?
A stock split happens when a company’s board of directors decides to increase the number of shares outstanding, giving current investors more shares but with a lower value.
Stock splits are typically defined by a split ratio, like 2-for-1 or 4-for-1.
In a 2-for-1 stock split, investors get an additional share for each share they currently hold, with shares now worth half their value before the split.
A 4-for-1 stock split gives shareholders four times the number of shares in their portfolio, with each share worth a quarter of its previous value.
Why would a company split its stock?
Stock splits typically occur when a company’s share price becomes too high for everyday investors to buy.
use an app that lets a person buy fractional shares. Splitting a stock makes individual shares cheaper without changing the company’s overall value in the market, and it makes those shares easier to buy and sell.” data-reactid=”86″>For most casual investors, stocks going for hundreds or thousands of dollars a share aren’t affordable — unless they use an app that lets a person buy fractional shares. Splitting a stock makes individual shares cheaper without changing the company’s overall value in the market, and it makes those shares easier to buy and sell.
In some cases, stock splits also can bump up share prices over time. Smaller investors may jump at the chance to purchase low-cost shares of a blue chip stock after a split, which will in turn boost demand and drive up the price.
2019 Nasdaq study found that, following a split, big companies saw their stock outperform the market by an average of almost 5% over the next year.” data-reactid=”88″>A 2019 Nasdaq study found that, following a split, big companies saw their stock outperform the market by an average of almost 5% over the next year.
Do you lose money if a stock splits?
If you already own shares in a company that splits its stock, the split won’t change the value of your investment.
It’s true that your shares will be worth less, but you’ll also own a proportionally larger number of them.
And as we mentioned above, a stock split generally spells good news for shareholders, since the increased demand from smaller investors may cause shares to appreciate in price.
Stock split example: Apple
Apple’s end-of-August stock split is the fifth in the tech giant’s history.
It has a ratio of 4-for-1, which means that Apple shareholders’ portfolios will now contain four times the number of shares they held previously, and each share will now be valued at a quarter of its previous worth.
So, if you owned 20 shares of Apple stock (APPL), valued at around $500 right before the split, your total investment would be worth $10,000.
Once the split is over, you’d own 80 shares of APPL, worth around $125 a piece. Your total investment of $10,000 would stay the same.
What is a reverse stock split?
In tough times, a company may decide to do a reverse stock split. As the name suggests, it’s the opposite of a traditional split.
In a reverse split, shareholders get fewer shares than they previously held but at a higher price per share.
So if you held 200 shares in a company that were worth $5 each, after a 1-for-4 reverse split you’d have 50 shares worth $20 each.
Reverse splits typically happen when a company’s share price is at risk of dropping so low that the stock gets kicked off a stock exchange. The New York Stock Exchange, for instance, typically deals in stocks worth a dollar or more.
What stocks might split in 2020?
