GameStop Stock Split Today: All You Need to Know

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GameStop Stock Split Today: What Should Investors Do?

GameStop Stock Split: Overview

GameStop Corp (GME) announced a stock split via an SEC filing after the shareholders voted to permit the plan. The share split is set to occur on July 21 by a four-to-one ratio which means anyone holding one share of GameStock will be receiving three additional shares but each share value will be one-fourth the price they formerly traded at. Investors are eligible for a GameStop stock split if they have held the shares in their account at market close on July 18 and will receive the additional three shares on 21 July. 

The closing price of the stock on 13 July was $117.41 before the disclosure of GameStop stock split news, the next day the stock price increased to 12% as this news was somewhat anticipated. In this article, we are going to learn GameStop corporation stock split, when the GameStop stock split, the GameStop stock split announce, the GameStop stock split vote, and what a stock split means for a company and its investors. How does a stock split affect share price?

GameStop Stock Split: What is a stock split?

Usually, a company opts for a stock split or reverse stock split when the company's share price is too high or too low. Post stock split, when the share price gets lower it allows new investors to invest in the company as the stock becomes cheaper and more affordable, also it boosts the share price. 

A stock split is when the company issues more shares of stock to its existing shareholders without decreasing the value of their stakes while the market capitalization and the value of shareholder's stakes do not change. Let's say you held one share of a company and the company declared a stock split of 2-for-1. You will be granted an additional share post stock split while the value of each share will be half the amount of the original. 

GameStop Stock Split 2022

GameStop Corp's stock split will be in the form of a share dividend to its shareholders. The shareholders will be issued additional shares for each share they hold in their account. After the GameStop share split, the original shares will be split into four shares, also the share price gets lower which makes it affordable for retail investors. The stock split does not change the fundamentals of the company or future earnings. 

Companies like Apple, Amazon, and Tesla have recently done stock splits, allowing new investors to buy their shares at an affordable price. The GameStop stock split date is on July 21. The stock split will only affect the outstanding shares and does not affect the market value or market capitalization of GameStop. 

GameStop Stock Split 2022 Rating

As of July 14, Quantitative ratings allocate a fair value estimate of $221.54 per share. Post the split, the price would be altered to roughly $55.39. Quantitative star ratings are 3 stars for GameStop and that means that the stock is fairly valued but quantitative uncertainty is extreme which means it is considered a highly risky investment for investors. 

GameStop Stock Split History

GameStop has one split in GameStop stock split history. The last stock split took place on 19 March 2007. The split was 2-for-1, meaning the shareholders will receive two shares for every one share held. 

Upcoming stock splits

When a company opts for a stock split, it creates a lot of enthusiasm among new investors as the stock split will lower the stock price, and hence, it becomes affordable and accessible for new retail investors although the fundamentals of the company do not change at all. Tesla shall split its stocks in the ratio of 3-for-1 after the board of directors' approval in the AGM to be held most likely on the 4th of August.

Why do companies opt for stock splits?

A stock split or reverse stock split doesn't change the fundamentals of the company nor does the investor's stake change in the company. So, why do companies opt for stock splits? 

The main purpose of a stock split is to make it accessible to new investors. After the stock split, the share price gets lower and hence, it attracts a lot of investors to invest in the company. 

Moreover, several public companies provide their employees an ownership stake by awarding shares in the form of stock-based compensation and a lower share price gives an advantage to a business to maintain pay benefits given to their employees. 

GameStop Stock Split: What Should Investors Do?

GameStop stock split news is capturing headlines after it declared a 4-for-1 stock split. So, should an investor buy the GameStop stock split because of a stock split? 

If you are a long-term investor, you should not be bothered about a stock split as you intend to own shares of the company for a few years. Although the company may have good motives for opting for a stock split, the fundamentals of the company and the underlying value of your investments are still the same after the stock split. So, look for companies that are growing, and have healthy balance sheets and profit margins that will benefit you on a long-term basis. 

There are no specific advantages for Investors who are already holding the shares of Gamestop as the valuation of your shares is not going to change post-stock split. Although you will receive three additional shares of Gamestop, they are one-fourth the price. 

GameStop stock split can be an advantage for new investors because one cannot afford to buy a share of GameStop before its stock split due to the high share price but one can afford to buy the shares post-GameStop stock split. When the share price gets lower, it becomes more accessible for investors, and the demand for shares increases. Moreover, the company valuation may also increase and the price is most likely to bump up.

We had done a blog on GameStop stock split earlier with details of analysts' views. Click here to read.

Benefits of Stock Splits

  • Boost liquidity: When a stock price increases, the stock's trading volume decreases. So, after a stock split, the outstanding shares increase which adds liquidity, and also leads to a decrease in the bid-ask spread. 
  • Increases share price: Usually, a company's stock price increases after a stock split and this is the reason a company goes for a stock split. According to the Nasdaq study, it is found that the share price increased by an average of 2.5% by simply announcing the stock split news by large-cap companies from 2012 to 2018. 
  • Attract new investors: A stock splits usually attract new retail investors because of the reduced stock price. 

GameStop Stock Split: Key Things to Keep in Mind

  • Increases volatility: Volatility can increase in the market due to a stock split because of the new stock price and when the stock price becomes affordable, more investors prefer to buy the stocks which leads to an increase in volatility of the stock. 
  • Fundamentals remain the same: A stock split does not affect the fundamentals of a company. 
  • Stock split costs money:A stock split involves a lot of time and money from the announcement to the execution of a stock split. A company has to pay a high fee to a bank for the planning and execution of a stock split. 

To conclude, a GameStop stock split or even GameStop reverse stock split does not change the underlying value of the business. As an investor, you should properly evaluate the fundamentals of the GameStop stock, risk tolerance, and investment goals before considering investing in any assets. So, do not rely solely on the GameStop stock split to make your investment decisions. 

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