Stock investing involves owning an interest in a public company and evaluating both the business and the price paid for that ownership. This guide explains the key concepts in practical terms.
What is a stock split?
In a conventional stock split, a company increases the number of shares outstanding and proportionally reduces the price per share. For example, a two-for-one split generally doubles the number of shares while halving the per-share price, all else equal.
What is a reverse stock split?
A reverse split reduces the number of shares outstanding and proportionally increases the price per share. A one-for-ten reverse split, for example, generally converts ten old shares into one new share.
The investment value does not automatically change
Immediately after a proportional split, an investor owns a different number of shares at a correspondingly adjusted price. The split itself does not create additional underlying business value.
Why companies split shares
Companies may use conventional splits to move the per-share price into a range they consider more accessible or desirable. Reverse splits can be used for several reasons, including attempts to raise a very low per-share price.
Adjust historical comparisons
Price charts, earnings per share and other per-share data are commonly adjusted for splits so investors can make meaningful historical comparisons.
Do not treat a split as a buy signal
A split announcement can attract attention, but the long-term investment outcome still depends on the company’s business performance, valuation, risks and market conditions.
Educational note: This article is for general educational purposes and does not provide individualized investment, tax, or legal advice. Investing involves risk, including possible loss of principal.
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Published: September 6, 2026 Updated: September 6, 2026
Reviewed by: Allocate Yourself Editorial Team Last reviewed: 2026-09-06