GME Stock News: What Does It Mean When Stocks Split?

GameStop (NYSE:GME) stock has been a violent mover in the market today, whipsawing from a gain of 16% in after-hours trading to a current loss of 5%. This volatility comes alongside news that GameStop is looking to enact a stock split, its first in 15 years.

A digital image of a ticker tape reads "STOCK SPLIT."
Source: iQoncept/ShutterStock.com

Typically, investors react positively to news of stock splits. We saw that earlier this year as a number of Silicon Valley firms have proposed or enacted such changes. The mechanics of stock splits are certainly intriguing, in that these don’t really matter for company fundamentals. However, having the ability to buy more shares at a cheaper price is enticing to some investors.

Let’s dive into exactly what a stock split is for investors who may be intrigued.

What Does the GME Stock Split Mean for Investors?

Very simply, a stock split can be thought of as making more slices of a pizza. If a company’s market capitalization (what it’s worth) is a pie, slicing the pie into smaller pieces means investors will own more shares (or pieces of the pie). Accordingly, this may be attractive for investors with smaller budgets, or those looking to own whole shares. For companies that see their share prices surge, this allows for a broader investor base.

Accordingly, there certainly are some benefits for companies to engage in stock splits.

Additionally, stock splits fundamentally lower the price per share of a given company. More slices of pizza means each slice gets smaller. Thus, for those looking to play the options game, options prices get much cheaper as well. This can allow speculators more freedom with their favorite stocks, while better managing their risk.

Indeed, like other meme stocks, options activity has driven much of GameStop’s recent rise. For those bullish on the short squeeze thesis, this stock split makes a future squeeze more likely. Therefore, it’s easy to see why investors grew bullish on this stock this morning.

So what is the bottom line? A stock split doesn’t change anything except the price per share of a company. Today’s price action in GameStop appears to highlight this phenomenon quite well.

On the date of publication, Chris MacDonald did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Chris MacDonald’s love for investing led him to pursue an MBA in Finance and take on a number of management roles in corporate finance and venture capital over the past 15 years. His experience as a financial analyst in the past, coupled with his fervor for finding undervalued growth opportunities, contribute to his conservative, long-term investing perspective.


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