Recently, stock splits have become more common in both Japanese and global stock markets. Many retail investors are paying attention to these announcements, especially when major companies like Apple are involved. In this article, we’ll explore the advantages and disadvantages of a stock split, using real English phrases to boost both your financial knowledge and language skills.
✅ What is a Stock Split?
A stock split is when a company divides its existing shares into multiple new shares. The total value of the investment remains the same, but the price per share decreases, making it look more affordable.
📘 Useful phrase
- A stock split increases the number of shares outstanding while reducing the share price proportionally.
👍 Advantages of a Stock Split
- More Affordable for Retail Investors
A lower share price allows more people to buy the stock.
📘 Phrase:
- A lower share price makes the stock more accessible to retail investors.
- Improved Liquidity
With more shares and more buyers, trading volume may increase.
📘 Phrase:
- A stock split can increase liquidity by attracting more buyers and sellers.
- Positive Market Perception
A split can signal confidence in future growth.
📘 Phrase:
- A stock split is often seen as a signal of confidence in future growth.
👎 Disadvantages of a Stock Split
- No Change in Company Value
The company’s fundamentals don’t change.
📘 Phrase:
- A stock split does not change the company’s market capitalization.
- Possible Misunderstanding by Investors
Some may think the stock is cheaper, even though it’s just split.
📘 Phrase:
- Some investors may mistakenly believe the stock is cheaper after a split.
- No Guarantee of Long-Term Gains
A split doesn’t automatically lead to higher prices.
📘 Phrase:
- A stock split alone does not guarantee higher returns.
🍎 Case Study: Apple Inc.
Apple has conducted five stock splits in its history. The most recent was in August 2020, when the company did a 4-for-1 stock split.
Before the split, the stock price was around $500 per share. After the split, it dropped to about $125, making it more affordable to individual investors. The result? Trading volume surged, and the stock continued to perform well afterward.
📘 Phrases:
- In August 2020, Apple conducted a 4-for-1 stock split to make shares more affordable.
- Following the split, trading volume surged and investor interest increased.
Apple’s case is often cited as a successful example of a stock split, but it’s important to remember that the company had strong fundamentals and brand power behind it.
✍️ Key Takeaways
Stock splits can be beneficial, especially for attracting retail investors and increasing liquidity. However, they don’t affect the actual value of the company. Strong business performance and investor confidence are what truly drive long-term gains.
📘 Final phrase to remember:
- A stock split increases accessibility, but not value.
