Stock Split Watch: Is Amazon Next?
When a company splits its stock, it decreases the share price but increases the amount of shares in the market by the same ratio. Stock splits don't affect a company's valuation at all, as its market cap remains unchanged.
And yet, a stock split has sometimes historically catalyzed a stock higher. Why would that be, if the intrinsic value of a company remains unchanged? Well, once the price per share of a stock gets high enough, retail investors without as much investable cash to spare can become priced out. So when a company splits its stock, individual shares become more "affordable" for those without as big a portfolio.
Of course, in recent years, more and more stock brokerages have offered investors the ability to buy fractional shares. That means investors now increasingly have the ability to buy a portion of a share instead of a minimum of one. Still, many still don't have brokerage accounts with this capability, and those with older brokerage accounts may not wish to go through the hassle of transferring their portfolio to one that does.
Source Fool.com
