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What Investors Must Know About Stock Splits

Retail investors and sometimes institutional investors are often enamored of stock splits,

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What Investors Must Know About Stock Splits

Retail investors and sometimes institutional investors are often enamored of stock splits, which reduce a company's price per share by multiplying the number of shares available. However, experts say a key thing for investors to remember is that the activity in and of itself doesn't change a company's fundamentals.

Inexperienced as well as experienced investors should pay attention to various details in order to identify all possible risk factors. So, it makes sense to learn more about each company.

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You need to remember that a stock split doesn't alter the trajectory of that company's performance, as well as there's no telling if share prices will rise after a split.

It is worth pointing out that the argument in favor of stock splits historically has been that reducing the cost of a high-flying stock would make it more affordable for investors who weren't able to afford the pre-split price of a share. However, with the proliferation of online as well as mobile trading platforms that allow fractional shares, investors have been able to purchase positions in any stocks they wish.

However, investors tend to regard stock splits as a positive sign, and companies often get a bump in their valuations when announcing and introducing the maneuver.

Stock splits and main findings

The tech giant Google's stock split, is one of the biggest stock splits in recent history on the benchmark S&P 500 index.

So far, the three biggest stock splits this year have all been in the technology sector. Notably, this makes it a little tough to analyze the influence of the splits on companies' share prices since the sector has been under tremendous pressure this calendar year, as investors fret about rising interest rates as well as high earnings expectations in the face of what many people consider an increasingly likely economic downturn.

Let's have a look at the biggest stock splits that occurred in 2022.

Investors and tech companies

We can start with Amazon. It announced a 20-for-1 stock split back in March. Amazon stock quickly rose by about 5% on the news and continued trending higher for the next several weeks, but has declined since then. Importantly, trading began at the new price as of June 6.

This year's was the first stock split e-commerce giant had undertaken since 1999. Before its most recent split, a share of Amazon stock was worth $2,785.58.

Regarding the biggest stock splits, we need to mention Shopify. It completed a 10-for-1 stock split in June and began trading at the new ratio on June 29. However, neither the announcement nor the new share price could stop its slide.

Alphabet stock registered a slightly rough start when Alphabet started trading at its split-adjusted price of about $113 on July 18, declining by more than 2%. Some analysts held out expectations that Alphabet will recover to increase in value, the way Tesla and Apple both did after their most recent stock splits in 2020.