While companies execute stock splits for a number of reasons, usually, it's to make their stock available to a wider audience of investors, thereby improving sentiment. When a stock is trading above $1,000, it severely limits the type and number of shareholders it can attract. Small investors are locked out of participating in the success of these beloved companies. An announcement of a stock split often causes the underlying stock to surge higher in anticipation of more investors taking positions. It also bolsters a stock's liquidity. When stocks rise through $1,000 per share, the bid and ask spreads can be as wide as several points, leading to a lot of slippage. Stock splits ensure tighter price spreads, resulting in less slippage when executing trade orders.
After the stock split is executed, share can continue to move higher, thereby compounding the underlying gains for pre-split owners like in the case of the consumer discretionary sector giant Walmart Inc. (NYSE: WMT). The nation’s largest importer and the world’s largest employer issued a 3-for-1 stock split that priced shares around $58.18 on Feb. 26, 2024. Since then, the stock has climbed to $85.79 as of November 13, 2024. This was Walmart’s 10th stock split. An investor who purchased just one share of Walmart in 1975 would have 1,536 shares today as a result of all the stock splits.
