Stock Splits Are Trending: What You Need to Know
Stock splits have been making headlines this year, with MicroStrategy being the latest company to announce a 10-for-1 stock split as its shares hit $1,340. This move comes in the wake of a stock-split boom driven by record-high prices for popular stocks among investors.
But why are so many companies choosing to split their stock? The answer is simple: to attract more investors. Companies like Nvidia, Walmart, and Chipotle, which have implemented stock splits or announced plans to do so this year, are household names with high share prices. The popularity and high price of these stocks make them prime candidates for a split, according to market experts.
Interactive Brokers chief strategist Steve Sosnick explained, “The market is up — a lot — and the most popular stocks among individual investors are among those leading the charge. The rise in the market means that more stocks are now expensive enough to justify a split while the popularity with individuals is what prompts managements to consider splits.”
Looking ahead, Sosnick identified companies trading above $500 a share, such as Autozone, Netflix, and Adobe, as potential candidates for stock splits. According to Bank of America, stock splits can be beneficial for prices in the long run, with average returns one year later at 25% compared to around 12% for the broader market.
However, Sosnick cautioned that stock splits can also have a “buy the rumor, sell the news” impact on share prices in the short term. As seen with Chipotle, whose shares dropped 12% following a 50-for-1 stock split in late June, the initial excitement around a split may not always translate into sustained price growth.
While stock splits can be a strategic move to attract investors and potentially boost prices, it’s essential for investors to consider both the long-term and short-term implications of these corporate actions. Stay informed and navigate the stock market with confidence, keeping an eye out for companies that may be gearing up for a split to capitalize on potential gains. Extreme Investor Network is your go-to resource for expert insights and analysis on all things finance.