Today, let’s dive into stock splits and clear up some common misconceptions.
One of the biggest myths about stock splits is that they change the capital structure of a company — meaning that they change the value of the actual company.
In reality, a stock split just makes the shares more affordable without changing the company’s overall value.
For example, in a 10-for-1 split, the stock price becomes a tenth of what it was, but there are 10 times as many shares — and that leaves the market cap of the company unchanged.
Stock splits were a massive deal in the 80s and 90s. Back then, news of a split often led to a rush of buying, pushing the stock price up post-split.
The thought was that making shares more affordable would attract more mom-and-pop investors. But today, with the availability of fractional shares, this isn’t as significant as it once was.
A key point to remember is that the fundamentals of a company don’t change with a split.
A stock that’s not in a good trend won’t suddenly become valuable just because it’s split.
On the other hand, if a company is in a strong trend, a split can attract more attention and possibly help it continue its upward trajectory.
Another common myth that lots of people mistakenly believe is that a cheaper stock can double more easily than a higher-priced one.
Think about it: If you see a stock trading at $1 per share, doesn’t it “feel” like it could more easily get to $2 than a stock at $1,000 per share can get to $2,000?
It might feel like it — but it just isn’t true.
The stock’s potential to double depends more on its fundamentals and market conditions than its price.
Recent & Upcoming Stock Splits
One of my favorite stocks, NVDA, did a 10-for-1 stock split just a few weeks ago. I even started a program to trade it just as the split was approaching.
Similarly, Chipotle (CMG), another stock I have traded a lot in the past, just did a 50-for-1 stock split in June.
That’s one of the largest in the history of the NYSE.
Now, with AVGO on the verge of doing a 10-for-1 stock split — it’s happening before Monday’s open — you might be wondering how you should play it.
While I can’t give away all the details just yet, let’s say there’s a strategy that goes beyond simply buying the stock post-split — and I plan to trade it myself!
I’ll be revealing all the details tomorrow, Wednesday, July 10th @ 1pm Eastern and you can click here to register your spot and join me!
Trade well,
Jack Carter
