What is a Stock Split?
A stock split is a corporate action that increases or decreases the number of a company’s outstanding shares while proportionally adjusting the share price. The total value of shares held by investors remains the same—only the number of shares and price per share change.
How Stock Splits Work
Forward Split Example (2-for-1)
| Before Split | After Split |
|---|---|
| 100 shares | 200 shares |
| $200 per share | $100 per share |
| $20,000 total value | $20,000 total value |
You have twice as many shares, each worth half as much.
Types of Stock Splits
Forward Split
More shares at a lower price per share.
| Split Ratio | Result |
|---|---|
| 2-for-1 | Double shares, half the price |
| 3-for-1 | Triple shares, one-third the price |
| 4-for-1 | Quadruple shares, one-fourth the price |
| 10-for-1 | 10x shares, one-tenth the price |
| 20-for-1 | 20x shares, one-twentieth the price |
Reverse Split
Fewer shares at a higher price per share.
| Split Ratio | Result |
|---|---|
| 1-for-2 | Half shares, double the price |
| 1-for-5 | One-fifth shares, 5x price |
| 1-for-10 | One-tenth shares, 10x price |
Why Companies Split Stock
Forward Splits
- Lower price accessibility: More affordable for retail investors
- Increased liquidity: More shares trading in the market
- Options availability: Easier to trade options at lower prices
- Index inclusion: Some indices have price requirements
- Psychological appeal: Lower prices seem more “affordable”
Reverse Splits
- Maintain listing requirements: Exchanges require minimum prices
- Attract institutional investors: Some funds can’t buy low-priced stocks
- Reduce administrative costs: Fewer shares to track
- Improve perception: Higher price may signal stability
Notable Stock Splits
| Company | Split | Date | Pre-Split Price |
|---|---|---|---|
| Apple | 4-for-1 | 2020 | $500 |
| Tesla | 3-for-1 | 2022 | $891 |
| Amazon | 20-for-1 | 2022 | $2,447 |
| Alphabet | 20-for-1 | 2022 | $2,255 |
| Nvidia | 10-for-1 | 2024 | $1,200 |
What Doesn’t Change
- Total market value of your investment
- Percentage ownership in the company
- Company fundamentals (revenue, earnings, etc.)
- Dividend per dollar invested (adjusted proportionally)
What Changes
- Number of shares you own
- Price per share
- Earnings per share (mathematically adjusted)
- Dividend per share (mathematically adjusted)
Adjustments After Splits
Historical Prices
Stock charts adjust historical prices to reflect splits, maintaining an accurate visual.
Earnings Per Share
Historical EPS is recalculated:
- Pre-split EPS of $10 becomes $5 after a 2-for-1 split
Dividends
- Pre-split dividend of $1.00 becomes $0.50 after a 2-for-1 split
Stock Split vs. Stock Dividend
| Action | Mechanism |
|---|---|
| Stock Split | Mathematically divides shares |
| Stock Dividend | Issues new shares as dividend |
Both increase share count without changing total value.
Reverse Split Warning Signs
Reverse splits often indicate:
- Struggling company trying to maintain listing
- Declining stock price over time
- Potential continued underperformance
However, some healthy companies do reverse splits for strategic reasons.
Fractional Shares
If a split results in fractional shares:
- Some brokers support fractional ownership
- Company may pay cash for fractions
- Fractions may be rounded up or down
Impact on Options
Options contracts are adjusted after splits:
- Strike prices are divided by split ratio
- Number of contracts may increase
- Contract multiplier may change
Related Financial Terms
This glossary entry is for educational purposes only and does not constitute investment advice.