Stock splits can be seen as a positive event, especially for individual investors. Here are a few reasons why stock splits can be considered good:
- Increased affordability: When a stock splits, the number of shares increases while the price per share decreases proportionally. This makes the stock more accessible to a broader range of investors who may have found the original price per share too high.
- Increased liquidity: Splitting a stock can result in increased trading activity and liquidity for the company's shares. Higher trading volumes can potentially attract more investors and improve price discovery.
- Improved market perception: Stock splits are usually seen as a positive signal by the market because they often occur when a company's stock price has been trending upward, indicating confidence in future growth prospects. This positive perception may further attract investors.
- Psychological impact: Stock splits can often have a positive psychological impact on investors. A lower-priced stock may feel more affordable and less intimidating, potentially leading to increased buying interest.
However, it's important to note that stock splits do not inherently change the fundamental value of a company. The total market capitalization remains the same before and after the split, as does the underlying profitability and potential risks. Hence, while stock splits can be perceived as positive, they don't guarantee an increase in stock value or financial performance.