When Apple was in the high $600 or so range, it split 7-for-1 and made it more affordable to purchase more shares for less, even though the value was technically the same. I see companies like Google are extremely high per share and am wondering why or why not they would or wouldn't split their stock right now.
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4AAPL didn't "split 6 times" -- it was a 7-for-1 split, once. Splitting (2-for-1) six times would be 64-for-1.– Chris W. ReaJul 25, 2014 at 2:15
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1@Chris Perhaps he meant "split [to be] 6 times [smaller]", in which case he was just off a little (and worded it ambiguously).– Tim S.Jul 25, 2014 at 2:28
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@TimS Yes, I expected he meant something different than what he wrote.– Chris W. ReaJul 25, 2014 at 3:04
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3 Answers
From Investopedia,
A stock split is usually done by companies that have seen their share price increase to levels that are either too high or are beyond the price levels of similar companies in their sector. The primary motive is to make shares seem more affordable to small investors even though the underlying value of the company has not changed.
From Wikipedia,
It is often claimed that stock splits, in and of themselves, lead to higher stock prices; research, however, does not bear this out. What is true is that stock splits are usually initiated after a large run up in share price...stock splits do increase the liquidity of a stock; there are more buyers and sellers for 10 shares at $10 than 1 share at $100. Some companies have the opposite strategy: by refusing to split the stock and keeping the price high, they reduce trading volume. Berkshire Hathaway is a notable example of this.
Something more to munch on, Why Warren Buffett Is Against Stock Splits.
answered Jul 24, 2014 at 16:36
A reason not to split your stock is that the value of the company might fall back again, and if its stock price falls below $1 it will be delisted from the NYSE. So if the value of your company grows tenfold so the shares go from $5 to $50, you do a ten-for-one split, and then its value shrinks back to where it started, you're off the stock exchange.
answered Jul 24, 2014 at 16:43
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4This is true, but you can then do a reverse split to get your share price back up.– ToddJul 24, 2014 at 17:49
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3@Todd Something you don't ever want to do. You are telling your investors it will not go back to 5 any time soon and it is costly to the company to do the reverse. If your stock falls below 5 it will not be considered for most funds. Its really devistating Jul 25, 2014 at 14:35
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@MarkMonforti the share price was artificially low due to an unadvised stock split. The reverse just puts the share price back where it should have been.– RonJohnNov 11, 2022 at 9:57
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Very few (none???) publicly traded companies will do any sort of stock split at $50/share.– RonJohnNov 11, 2022 at 9:59
The reason to do a stock split is to get the price of the stock down to an affordable range. If your stock costs $100,000 per share, you are seriously cutting in to the number of people who can afford to buy it.
I can think of two reasons NOT to do a stock split. The biggest is, Why bother? If your stock is trading at a reasonable price, why change anything? It takes time and effort, which equals money, to do a stock split. If this serves no purpose, you're just wasting that effort.
The other reason is that you don't want to drive your stock price down too low. Low prices are normally associated with highly speculative start-up companies, and so can give a wrong impression of your company. Also, low prices make it difficult for the price to reflect small changes. If your stock is trading at $10.00, a 1/2 of 1% change is 5 cents. But if it's trading at $1.50, a 1/2 of 1% change is a fraction of a penny. Does it go up by that penny or not? You've turned a smooth scale into a series of hurdles.
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I guess, since I am new it's harder for me to understand. However, I am looking at Googles stock and see that they are about $~589 per share. I feel like this would cut out a lot of potential investors in my case because it's so expensive. Is this true or am I missing an obvious point? Jul 26, 2014 at 20:12
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1That's a pretty high share price. I haven't done a survey but I'd guess most stocks trade for somewhere between maybe $20 and $100 a share, and if they go much above that, they do a split. Whether Google has a specific reason for not splitting and what that might be, I have no idea.– JayJul 28, 2014 at 14:05
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1btw The most expensive stock I own is Amazon, which is now trading at $3,300 per share. I originally bought a big 2 shares (when it was about $1,300 per share) and later sold 1, so I now own 1 share. :-) The cheapest stock I own is Ford, which is $1.68 a share. I own 400 shares of Ford -- and that's worth less than my 1 share of Amazon.– JayAug 21, 2020 at 1:30