A stock split is a corporate action where a company divides its existing shares into multiple shares. The total dollar value of the shares outstanding remains the same, but the number of shares increases. For example, in a 2-for-1 split, an investor who previously owned 100 shares at \$50 per share would then own 200 shares at \$25 per share. The overall value of the investment, \$5000, does not change.
This maneuver is often undertaken by companies whose share price has risen considerably, making it less affordable for individual investors. By lowering the price per share, the stock becomes more accessible, potentially increasing liquidity and broadening the shareholder base. Historically, stock splits have been viewed favorably by investors, sometimes signaling management’s confidence in the company’s future prospects and potential for continued growth.