What actually happens in a split
Imagine you own 100 shares of a company trading at £1,000 per share — a total value of £100,000. The company announces a 4-for-1 stock split. After the split, you own 400 shares at £250 each. Your total value is still £100,000. Nothing fundamental has changed about the company — it's the financial equivalent of breaking a £10 note into ten £1 coins.
Why companies split their shares
There are practical reasons. When a stock's price becomes very high — Apple reached over $700 before its 7-for-1 split in 2014 — it can deter small retail investors who can't afford a single share. A lower price makes the stock more accessible. Lower-priced shares also tend to have narrower bid-ask spreads in absolute terms, improving market liquidity. And historically, stock splits tend to coincide with strong prior performance — a company that's risen from £50 to £1,000 per share is probably doing something right.
| Company | Split | Year |
|---|---|---|
| Apple | 4-for-1 | 2020 |
| Tesla | 5-for-1 | 2020 |
| Amazon | 20-for-1 | 2022 |
| Alphabet (Google) | 20-for-1 | 2022 |
| Nvidia | 10-for-1 | 2024 |
Reverse stock splits: when it goes the other way
A reverse split reduces share count and raises price (e.g., a 1-for-10 reverse split turns 1,000 shares at £0.50 into 100 shares at £5). Companies usually do this to avoid being delisted from exchanges that require a minimum share price. A reverse split is almost always a bad sign — it signals that shares have fallen dramatically and the company is struggling. Unlike a forward split, a reverse split rarely precedes a stock recovery.
"A stock split doesn't change the value of what you own — any more than cutting a pizza into more slices makes it bigger." — a classic finance analogy
What this means for you
If you hold a stock that announces a split, your account balance stays the same — your broker adjusts automatically. If you held 10 shares before a 5-for-1 split, you'll see 50 shares at one-fifth the price afterwards. Splits are neither a buying nor selling signal on their own. What matters is the underlying business — not how many slices the equity pie has been cut into.