Potential Stock Splits and What They Mean for Investors

A stock split is a way for companies to make their shares more affordable and attractive to investors. This can be done by dividing existing shares into multiple new ones, effectively reducing the price of each share.

The goal of a stock split is to increase the number of shares outstanding, making it easier for small investors to buy and own a piece of the company. For example, a 2-for-1 split would turn one share into two, reducing the price of each share by half.

Stock splits can also be used to signal to investors that a company is confident in its growth prospects and wants to make its shares more accessible. In some cases, a stock split can even lead to increased trading activity and a higher stock price.

Additional reading: Apple Share Holding

The comeback in stock splits is a fascinating phenomenon. Stock splits were once common, but they've become much less frequent in recent years.

In the late 1990s, about 15% of Russell 1000 firms split their stock each year, but that was an anomaly. By the mid-2000s, that number had dropped to around 5%.

Stock splits practically ceased after the great financial crisis from 2008-2009. But now, there are signs of a subtle shift.

The price of some stocks has reached absurd levels, prompting companies to consider splits. Chipotle, for example, has never split its stock and is trading over $3,200, so it's splitting 50-for-1.

Some companies are also trying to appeal to retail investors by making stock ownership more accessible. Nvidia and Chipotle both cited this as a reason for their splits.

Walmart's statement announcing its split mentions the desire for its associates to feel that purchasing shares is easily within reach. This suggests that companies are starting to think about the impact of their stock prices on their employees and customers.

For another approach, see: Chipotle Share Split

Greene County Bancorp's 2-for-1 stock split in late February didn't quite work out as planned, as the stock fell due to the combination of the split and the subsequent pressure on regional banking stocks.

The stock has since rebounded and is now up roughly 35% since mid-March, showing that even without options traded, investors can still benefit from a stock split.

Sirius XM Holdings is another company with significant potential upside from a stock split. Its implied upside is 179% based on a split-adjusted price target of $65.

This potential upside is due in part to the company's recent merger with tracking stock Liberty Sirius XM, which some analysts believe has created a "market dislocation" that has driven down the stock price.

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Companies with a retail focus are already feeling the pressure of their high prices, with Chipotle, Broadcom, and Lam Research all splitting their stocks.

The "over $1,000" club in the S&P 500 is small and getting smaller, with only a few holdouts remaining.

Booking Holdings, Autozone, and Deckers Outdoors are among the companies that have yet to take the plunge, despite having prices above $1,000.

Retail-facing companies with lower price profiles may also become candidates for stock splits, such as Spotify, Ulta Beauty, and ServiceNow, which has never split its stock before.

Curious to learn more? Check out: Why Do Companies Do Stock Splits

Greene County Bancorp is a regional bank holding company based in Catskill, New York, the county seat for Greene County.

The company's board of directors approved a 2-for-1 stock split in late February, which resulted in shareholders receiving one new GCBC share for every existing share they owned.

This stock split happened right before the regional banking crisis hit in March, causing GCBC stock to fall due to the combination of the split and the subsequent pressure on regional banking stocks.

However, the stock has since rebounded and is now up roughly 35% since mid-March, demonstrating that investors can still benefit from a stock split even if the market takes a downturn.

The CEO of Greene County Bancorp stated that the stock split enhanced the investment value and liquidity of the stock, given its stock price and earnings gains.

Benchmark analyst Matthew Harrigan is one such analyst who believes Sirius XM Holdings has significant potential upside. He maintains a buy rating on the stock with a split-adjusted price target of $65.

Sirius XM Holdings has 34 million paying subscribers, and its audience increases to 150 million including its ad-supported Pandora music-streaming service. Its listener base is unrivaled.

The high levels of inflation that marked the past couple of years forced people to make tough choices with their disposable income, and some chose not to renew their Sirius subscription. This has helped push the stock down 56% so far this year.

Benchmark analyst Matthew Harrigan cites a "market dislocation" due to the company's recent merger with tracking stock Liberty Sirius XM as a reason for the stock's decline. He believes management's "strategic initiatives" will bear fruit.

Sirius XM is currently selling for roughly 7 times earnings, which factors in little-to-no future growth. This presents savvy investors with a compelling valuation.

The improving macroeconomic situation should reignite Sirius XM's growth, which will likely send the stock higher.

Stock splits can be a game-changer for investors, making shares more affordable and accessible to a broader range of people.

A stock split occurs when a company issues additional shares to shareholders, increasing the total number of outstanding shares. This action doesn't change the company's overall market value.

This means that if you own 10 shares of a company before the split, you might end up with 20 shares after the split, assuming a 2-for-1 split. The total value of your investment remains the same, but the share price is reduced proportionally.

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