Stock splits
The company cuts each share into pieces. You own more shares worth less each, and nothing whatsoever has changed.
In a ten-for-one split, every share becomes ten shares and the price becomes a tenth. Own 10 shares at $500 before, own 100 shares at $50 after.
10 × $500 = $5,000. 100 × $50 = $5,000. Your ownership share of the company is identical, the company's value is identical, and no money has moved.
Then why bother?
- Accessibility. A lower price per share is easier to buy in small amounts, though fractional shares have weakened this argument considerably.
- Liquidity. More shares outstanding can mean easier trading and a narrower spread.
- Signalling. Companies usually split after the price has risen, so a split is a quiet advertisement of past success.
Splits correlate with strong prior performance because that is what pushes a price high enough to split. Reading one as a forecast confuses the cause with a prediction.
Reverse splits
The opposite: ten shares become one, at ten times the price. Also arithmetically neutral, and usually a very different message.
Companies typically reverse split to lift a price that has fallen far, often to satisfy an exchange's minimum listing price. The split fixes the number; it does not fix whatever caused the fall.
What to check afterwards
Historical price charts are normally adjusted for splits, so an old price you remember may not match what a chart now shows. If a chart appears to show a sudden 90% fall on one day, check for a split before concluding anything.