Question

Let’s just discuss whether the stock spilt between Appke and Tesla would attract you to invest in either stock. Why or Why not?

Answer 1

A stock split is an activity wherein the one share is split into multiple no. of shares, but keeping the total value of shares the same. For Example a company may split each of its share with a Face Value of $1000 into 10 shares of $100 each.

This is usually done when the share price of the stock has become a huge value that small investors are not able to invest in it. Not all investors will have a $1000 to put into a single stock. Thus spliting the stock makes it available to more no. of investors. The investors who previously could not afford to buy the stock will now be able to afford it.

Also spliting the share gives more flexibility to the investor. For example an investor has $1500 with him and the share that he wants to invest in is traded at $1000. He will be able to buy only 1 share and he will have $500 spare with him. Instead if the share price was $100 each, then he could have invested the entire $1500.

Thus we can conclude that the spctrum of investors becomes wider by spliting the stock, thus it results into more demand and thus a higher price. The same is expected to be seen in the case of Tesla and Apple Stock Split also. The effects of the same are already visible since the announcement by them.

But this doesnt mean that spliting the stock will always lead to a positive sentiment in the market. It may also be possible that the prices may fall after a stock split. As the spectrum gets wider, it results into a higher volatility for the stock. Thus as and when more investors or traders buy and sell the shares, it may so happen that a slight fall in the price may lead others to sell and thus a sharp fall in price.