Potential Stock Splits 2024: What to Expect in the Market

As we head into 2024, the stock market is buzzing with anticipation about potential stock splits. Several companies have already announced plans to split their shares, with some even considering multiple splits.

One notable example is Amazon, which has a history of stock splits. In 1998, the company split its shares 2-for-1, followed by another 2-for-1 split in 1999.

Microsoft is another company that has announced plans for a stock split. In 2024, the tech giant is expected to split its shares 4-for-1, which could make the stock more affordable for individual investors.

This move is likely to boost investor confidence and attract more small traders to the market.

There are two main types of stock splits that companies can use to increase the number of outstanding shares.

Companies can use a 2-for-1 stock split, which means they will double the number of shares outstanding by issuing one new share for every existing share.

A 3-for-2 stock split is another option, where three new shares are issued for every two existing shares.

This type of stock split is often used to make the stock price more affordable for investors, as it reduces the price per share.

Stock splits can be a great opportunity for investors, but they can also be confusing. A stock split occurs when a company divides its existing shares into a larger number of shares with a lower par value.

Companies typically split their stock to make it more affordable for investors to buy shares. For example, in 2020, Tesla split its stock 5-for-1, making each share worth one-fifth of its original value.

Investors who owned shares before the split will receive additional shares based on the split ratio. This can increase the value of their investment, but it doesn't change the company's overall value.

Stock splits can also make a company's stock more attractive to new investors. If a company is splitting its stock 2-for-1, for instance, it may be more appealing to investors who want to buy shares but are hesitant due to the high price.

Investors should consider the split ratio and the company's underlying value before investing. A 5-for-1 split, for example, may not necessarily mean the company's value has increased.

A stock split can be a great way for a company to increase its liquidity, making it easier for investors to buy or sell the stock. By increasing the number of shares outstanding, a company can boost the trading volume of its stock.

A lower share price after a split can make the stock more accessible to a wider range of investors who may have previously been deterred by the high price. This can drive up demand for the stock and attract new investors.

A stock split can improve the perceived affordability of a company's stock. For example, a stock that trades at Rs.1,000 per share may be viewed as unaffordable by some investors. However, after a 2-for-1 stock split, the same stock will be trading at Rs.500 per share, making it more accessible.

A share split can result in more outstanding shares, increasing a company's market capitalisation. This can attract institutional investors who may have previously been unable to invest in the company due to its low market capitalisation.

Here are some of the key benefits of a stock split:

Let's break down what happens during a stock split. The original share price of a company is typically higher, like Rs. 1,400.

The investor's total investment remains the same, even after the split, because the number of shares increases while the price per share decreases. This is evident in the example of Company X, where the investor's total investment of Rs. 14,000 remains unchanged.

The share price is adjusted to reflect the split ratio, becoming Rs. 700 per share. In the case of Company X, the share price was split 2:1, resulting in a new share price of Rs. 700.

Here's a summary of the changes that occur during a stock split:

Stock splits are a hot topic in the market, and 2024 has seen its fair share of high-profile splits. Several of these events have been followed by volatile short-term performance.

A popular perception of stock splits is that they're bullish catalysts, making shares more affordable to a wider range of investors. However, recent splits suggest that traders can't count on lower stock prices to immediately produce more-aggressive buying.

For instance, Chipotle's 50-for-1 stock split took effect on June 26, but the stock closed at $65.86, which would have been $3,293 before the split. As of Tuesday, the stock was trading more than 11% lower.

After one week, eight of the 10 stocks that split had positive returns, but only one (Amphenol) gained more than it had in the week after the split announcement. It's worth noting that having a lower stock price didn't appear to translate immediately into bullish outperformance.

A stock split can increase liquidity by increasing the number of shares outstanding, making it easier for investors to buy or sell the stock. This can be seen in the example of Company X, where the investor received 2 additional shares for each existing share after the 2:1 split.

Here are some key points to keep in mind when considering stock splits:

Note: Data for other stocks is not provided in the article section.