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Stock Splits

Questions › Category: Valuation Quadrant › Stock Splits
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Calvin Lim asked 3 years ago

Dear Victor, there were some companies doing stock splits recently (e.g. Apple, SIA). I tried to google more about it – on the good side, it kind of makes it more “affordable” for investors to get a share of the company. Some might think that it is a dilution of the existing stock value. Are stock splits a bad thing and what are the reasons why companies perform a stock split?
Thank you so much in advance!

1 Answers
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Victor Chng answered 3 years ago

Hi Calvin,
 
There is no dilution when it comes to stock split as the all the existing shareholder get the same amount of shares depending on the number of shares they have. 
 
The reason for stock split is as what you have mentioned above, it is to make it affordable for retail investors to purchase.

Victor Chng replied 3 years ago

Other than that there is no merit to stock split.

Calvin Lim replied 3 years ago

Thanks Victor!

snowcap replied 3 years ago

Related to that is that it enhances liquidity. For US shares, the options also becomes easier to trade with a limited capital, so the options market becomes active, which in turn also boosts liquidity in the primary share market for that stock. And liquidity is overall a good thing, imho.

Victor Chng replied 3 years ago

Thanks for sharing Snowcap :)

Calvin Lim replied 2 years ago

Thank you, snowcap!