What Is a 10-to-1 Stock Split?
A share of stock in a company entitles the shareholder to a percentage of ownership in the company that issued the share. The price of this stock will move up and down, depending on the perceived value of the company. The company that issued the stock retains several options for how these stocks are managed. One is to split the stock, so one share is divided into multiple shares.
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Stock Split
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When a stock splits, it means that the one share of stock is transformed into multiple shares. The total value of the company does not change, only the number of stocks. This means that each of the new stocks is priced in a way that is proportional to the amount of the original share of stock. For example, a share of stock that undergoes a 2-to-1 split will be worth half as much after the split as it was before.
10-to-1 Split
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When a company undergoes a 10-to-1 stock split, it means that for each share of stock an investor holds, he will receive 10 shares of stock. Each of these shares will be worth 10 percent of the price of the original share. So, if a shareholder has one share of stock worth $50, after a 10-to-1 split of that stock, he will own 10 shares worth $5 each.
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Reasons
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There are a number of reasons that a company may split its shares. However, the most typical reason is to make the stock more affordable to investors. For example, if a single share of stock is worth $1,000, many small-time investors will not be able to afford it. By reducing the price of a single share by 90 percent, the stock becomes affordable to far more people.
Example
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In 2010, the Chinese Internet search company Baidu performed a 10-to-1 stock split on its stock. When the split was performed, the stock was trading at more than $700 per share. Afterward, it was trading at a little more than $70. However, because investors believed that more people would buy the stock after it became more affordable, the stock price rose by $6 after the split due to the expectation of increased demand.
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