Aside from lowering it’s price and increasing it’s shares?
How does it affect the valuation of the stock?
Aside from lowering it’s price and increasing it’s shares?
How does it affect the valuation of the stock?
20 Aug
6:32 am on August 20th, 2010
Basically it splits in 2 or 3 for 2 something like. If you have 1 $30 share it becomes 2 $15 shares. I have a website about investig you might find interesting
http://www.dream-life-coaching.com/investing.html
good luck
7:30 am on August 20th, 2010
A stock split does not have any direct affect on the value of a stock. A 2:1 stock split will simply cut the value in half and double the amount of shares outstanding. Your total holdings are not affected.
Stock splits sometimes have an indirect affect of increasing demand for a stock. This was especially true in the past when stock purchases were almost always done in lots of 100 shares before the advent of on-line brokerages.
If a stock was worth $100, you would need $10,000 to purchase 100 shares. Following a 4:1 split, you could now purchase 100 shares for $2,500.
Odd lot trading is the norm now with on-line brokerages, but there is still a psychological barrier that to purchasing stocks with high dollar values. So in effect, a stock split can increase demand thus increasing the stock price.
7:42 am on August 20th, 2010
Most people think in one dimension, and when it comes to numbers they have a mental range of 1 to 100. Psychologically they think that a stock priced at $100 is expensive while one priced at $10 is inexpensive. Experienced and knowledgeable investors know that a $10 stock can be relatively more expensive than a $50 or $100 one, but a novice will not buy shares of a stock priced at $100, yet will buy 4x as many shares at $25 after it splits 4 for 1. In reality he has the same amount of ownership, but psychologically he feels like he has more. Sort of like a child might select 4 quarters over 1 silver dollars, purely mental. Still it could attract a wider, albeit less informed audience.
7:48 am on August 20th, 2010
Many people use the P/E ratio (price divided by earnings) as a guide for a stock’s value. Splitting reduces a stock’s price and has no effect on the company’s earnings. So it makes the stock more attractive from a P/E standpoint; it makes the shares look cheaper relative to earnings. It’s not really a substantive change.
8:14 am on August 20th, 2010
Sophisticated investors ignore stock splits. They, in fact, mean nothing.
The valution of the companies changes by 0.00% (exactly!)……….
8:52 am on August 20th, 2010
By and large, a stock split is a good thing because, by cutting the price of a single share, it encourages the stay-at-home, trade-it-yourselfers to sample a stock that previously, would have been out of their “play money” budget. The increased activity and higher volume… even though each share now has a smaller pricetag, are all +’s. Good luck to you!