What Is a Stock Split?
4 min read · Updated June 30, 2026
A stock split is one of the more misunderstood corporate actions. It changes the number of shares and the price per share — but not what the company is actually worth.
Knowing why explains a common beginner trap: thinking a split makes a stock "cheaper."
How a split works
In a stock split, a company divides each existing share into more shares. In a 2-for-1 split, every share becomes two, and the price per share is halved.
If you owned one share at $200, you now own two shares at $100. Your total value — and the company’s — is unchanged.
Why companies split
The main reason is to keep the share price in a range that feels accessible to individual investors. A very high price per share can look intimidating even when the company isn’t expensive by valuation.
A split can also improve liquidity by increasing the number of shares available to trade.
Why a split doesn’t make a stock cheaper
Because a split changes price and share count in equal proportion, the valuation — measured by market cap or P/E ratio — is exactly the same afterward.
A stock is not a better deal just because its price dropped in a split. What matters is the value of the whole company, not the price of a single share.
Frequently asked questions
What is a stock split?
A stock split increases the number of shares while proportionally lowering the price of each. For example, a 2-for-1 split turns one $200 share into two $100 shares, leaving total value unchanged.
Does a stock split make a stock cheaper?
No. A split lowers the price per share but raises the share count by the same ratio, so the company’s market capitalization and valuation are unchanged. The stock is not a better bargain because of a split.
Why do companies split their stock?
Mainly to keep the share price accessible to individual investors and to improve trading liquidity. A very high price per share can deter smaller buyers even when the stock isn’t expensive by valuation.
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