When A Stock Does The Splits Stock prices are driven by the basic law of supply and demand. Sometimes demand pushes a stock price so high that investors shy away from buying it -- either because they fear the stock price is about to tank, or because they simply can't afford the price. In such a case, the board of directors might decide on a stock split.				> Home > Glossary > Support
		When a stock splits, the total value of a company's outstanding shares remains the same, but the number of outstanding shares increases. Here's an example.
		Stock Splits Sample
		Say XYZ company has 500,000 shares outstanding, and each share costs $100, for a total market capitalization of $50 million. Now XYZ company thinks $100 a share is too expensive, so the management decides to do a 2-for-1 split. The total number of shares outstanding will be doubled (to 1 million) and the price-per-share will be halved (to $50), for a total market capitalization of $50 million. From your point of view as a stockholder, here's what happens: if you own 100 shares worth $100 each (total investment of $10,000) before the split, you will own 200 shares worth $50 each (total investment of $10,000) after the split.
		Even though stock splits don't change the value of your investment, they tend to cause investors to become excited. This is because many investors believe that companies split their stock just before they know it will increase in value (before reporting increased earnings, for example). Also, when a stock splits it becomes affordable to a larger pool of investors. This is why a stock split can lead to a short-term rally in a stock's price for no fundamental economic reason, while over the intermediate term it wouldn't have a significant effect.
		Splits don't have to be 2-for-1. They can be done at any ratio: 3-for-2, 10-for-1, etc.
		If the board of directors feels the stock price is too low and makes the company look like an unattractive investment, it might decide to do a reverse split. In this case, if you owned 100 shares at $1 each and the company decided to do a 1-for-10 reverse split, you would end up with 10 shares valued at $10 each.

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