2022’s Most Significant Stock Splits and Their Impact on Investors

Stock splits were a hot topic in 2022 as several major companies decided to adjust their share structures. A stock split happens when a company increases the number of its shares while reducing the price per share, making it more affordable for investors to buy. This move often attracts new investors and boosts trading activity. However, while the value of each share changes, the overall value of the investment stays the same. Let’s explore the most notable stock splits of 2022 and their impact on investors.

What is a Stock Split?

A stock split involves increasing the number of shares while reducing the price per share. For example, if a company has 100 shares valued at $10 each, after a 2-for-1 stock split, there will be 200 shares priced at $5 each. The total value remains the same in both scenarios.

Types of stock splits

There are two types of stock splits – forward and reverse.

• Forward splits: This is when the number of shares increases and the price decreases.
• Reverse splits: This is when the number of shares decreases and the price increases.

Major Stock Splits of 2022

Tesla (TSLA)

In August 2022, fellow electric vehicle maker Tesla made the decision to implement a 5:1 stock split – for every one share that an investor owned, they would receive four more shares. It was such a decision that changed the price of the organisation's share from approximately $2300 per share to just over $450 per share. The split was expected to help small investors who until now had been locked out of Tesla’s market and also aimed at increasing liquidity.

The effects of this split were therefore great as it saw the drawing in of a new demographic of investors who could not accommodate the price of the stocks. It also saw increased trading traffic and turned Tesla into one of the most heavily traded stocks in the market. Also, the lower price per share exposed the investors to the potential of diversifying by buying more stock quantities.

Apple (AAPL)

In July 2022, tech giant Apple announced a 4-for-1 stock split, reducing the share price from around $150 to approximately $37. This move was intended to make Apple's stock more accessible and affordable for individual investors.

The impact of this split was similar to that of Tesla’s – attracting new investors and increasing trading activity. However, unlike Tesla, which saw an immediate surge in its stock price after the split, Apple experienced a dip before experiencing steady growth. This could be attributed to the fact that many Apple shareholders were long-term investors who held onto their shares after the split.

Amazon (AMZN)

In April 2022, e-commerce behemoth Amazon announced a 3-for-1 stock split, reducing the share price from around $3000 to approximately $1000. This move was made in an effort to make Amazon’s stock more affordable for retail investors.

The impact of this split was similar to that of Tesla and Apple – attracting new investors and increasing trading activity. It also made Amazon's stock more attractive to long-term investors who were previously deterred by the high share price. Additionally, the lower share price allowed for easier comparison between Amazon's stock and its competitors in the same industry.

Shopify (SHOP)

In July 2022, e-commerce platform Shopify announced a 10-for-1 stock split, reducing the share price from around $1500 to approximately $150. Similar to other companies, this move aimed to make Shopify's stock more accessible to individual investors.

The impact of this split was also similar, bringing in new investors and increasing trading activity. However, it also had a significant psychological effect on current shareholders as owning ten times more shares made them feel like their investment had grown even though the overall value remained the same.

Alphabet (GOOGL)

In April 2022, Google's parent company Alphabet also announced a stock split, but in this case, it was a reverse stock split. This means that the number of shares owned by investors decreased while the price per share increased. For every eight Class A and Class B shares, investors received one Class C share.

The impact of this reverse stock split was different from traditional splits as it didn't affect the overall value of the investment. However, it did lead to increased trading activity and allowed for easier comparison between Alphabet's stock and its competitors in terms of price per share.

GameStop (GME)

The infamous GameStop stock split made headlines in June 2022 when the company announced a 10-for-1 reverse split. This move was made to increase the value of each share, which had been experiencing significant volatility due to market speculation.

The impact of this split was controversial as it was seen as an attempt by GameStop to manipulate its stock price. While some investors saw it as a positive move that would stabilize the stock, others criticized it for artificially inflating the value. The split also brought attention to the potential risks and consequences of reverse splits.

When a Stock Split is a Red Flag

While stock splits can be beneficial for investors, they can also serve as red flags for potential issues within the company. In some cases, companies may use stock splits to manipulate their stock price or distract from underlying problems.

Investors should always research and analyze the reasons behind a company's decision to split its stock before buying in. If the sole purpose is to increase the number of shareholders without addressing any fundamental issues, it could be a warning sign for savvy investors.

Conclusion

Overall, 2022 saw several significant stock splits that attracted new investors and increased trading activity. Companies like Tesla, Apple, Amazon, Shopify, Alphabet, and GameStop made strategic moves to make their stocks more accessible and affordable for individual investors. While these splits can have a positive impact, investors should also be cautious of potential red flags and thoroughly research a company before making investment decisions.