A stock split is when a company increases the number of its outstanding shares by issuing more shares to existing shareholders, without changing the overall value of their investment.
The most common reason for a stock split is to make the share price more affordable for retail investors, without affecting the company’s actual market value or the value of each investor’s holding.
How Does It Work?
In a stock split, the company divides each existing share into multiple new shares. Although shareholders now own more shares, each share is worth less, in proportion to the split ratio.
This means that the total value of your investment stays the same; it’s just divided into more pieces.
Common Types of Stock Splits
Type of Split | What Happens |
2-for-1 | Each share becomes 2 shares |
3-for-1 | Each share becomes 3 shares |
3-for-2 | Every 2 shares become 3 shares |
Example
Let’s say you own 1 share of a company worth $100, and the company announces a 2-for-1 stock split.
| Before the Split | After the Split |
Shares you Own: | 1 | 2 |
Price per Share: | $100 | $50 |
Total Value: | $100 | $100 |
You now own twice as many shares, but each is worth half as much. Your investment value remains the same.
Companies announce stock splits ahead of time to inform shareholders, investors, and the market about the upcoming change. Plum will inform you via email or an in-app notification in due time.