Stock Splits, Incoming

What Is a Stock Split?

Tesla (TSLA) and Apple (AAPL) have both announced plans for stock splits at the end of August. A stock split is when a company decides to divide its existing shares into multiple shares. A stock split does not change the value of a company, but it makes shares more liquid and more affordable for small investors. Stock splits often occur when a company believes its share prices have risen to levels that are too high, or levels that do not match its peer companies.

When stocks split, at first the price is reduced. For example, in a two-for-one split, stock prices would be cut in half—but an investor would now have two shares instead of one But prices often then increase because shares are accessible to more investors. A stock split also signals to markets that a stock’s price is rising, and could continue to climb.

Tesla’s Upcoming Stock Split

Tesla has seen its shares rise by over 500% over the past 12 months. When markets closed on Wednesday, Tesla stock was trading at $1,554.76 per share.

Tesla has become one of the most highly valued automakers in the world despite the fact that it sells far fewer cars than its competitors. Last month, the company reported a Q2 profit of $104 million, marking its fourth consecutive profitable quarter. This made Tesla eligible for admission into the S&P 500 index, which could push demand for its shares even higher.

On Tuesday, Tesla’s board voted to move forward with a five-for-one stock split. The company plans to begin trading its shares on a split-adjusted basis on August 31.

Apple Plans its Fifth Stock Split

Apple has announced plans for a four-for-one stock split. Like Tesla’s stock, Apple shares will start trading on a split-adjusted basis on August 31. At market close on Wednesday, Apple stock was trading at $452.04 per share.

This will be the fifth time Apple has split its stock. Most recently, the company orchestrated a seven-for-one split on June 9, 2014. The move shows Apple’s continued goal of attracting small, individual investors.

Stock splits used to be much more common for companies, but since the dot-com crash in 2000, their popularity has waned. However, these two upcoming high-profile stock splits have investors speculating about whether other companies with high stock prices like Amazon (AMZN), Google (GOOGL), Netflix (NFLX), and others might follow suit.

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