What is a stock split and how does it work?
Understand how stock splits work in practice
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Have you ever heard of a stock split?
Also known as a split, this measure is basically taken by companies traded on the stock exchange with the aim of reducing the value of their shares when their price starts to get too high.
And understanding this concept is very important for anyone wishing to invest in the capital markets.
To learn more about the subject, read on.
What is a stock split?
A stock split is a process that consists of dividing the number of outstanding shares in a company.
Its main objective is to reduce the price of the shares and increase their value on the stock market.
For example, if a share cost R$ 28, and it is divided 1 to 4, it becomes worth R$ 7. In other words, each investor now has 4 times as many shares.
In this way, the total value of this investment does not change.
This means that the percentage corresponding to the publicly traded capital remains the same, which considerably increases the total number of shares, although their value falls in the same proportion.
In short, the shareholder will have the same volume in reais, but with a larger number of shares.
How does the stock split process work?
To better understand the process, let's use a very common example: the comparison with a pizza.
Imagine you've ordered a giant pizza with 12 pieces. It's big enough for three people to eat, isn't it?
But now, imagine that other people have arrived at your house and, obviously, they want to eat the pizza too.
The solution to this is to divide the pizza into more pieces.
In other words, you can't change the size of the pizza. However, so that everyone can eat it, you can divide it into more pieces.
So that's also the idea behind the stock split.
Although the equity (total size of the pizza) remains the same, the number of shares increases, as there are more pieces available.
For the investor, there is no change in assets, but rather in the number of shares he owns.
Normally, a stock split occurs when the unit price of the shares is too high, making it difficult for minority investors to access them.
This considerably increases the liquidity of the shares and brings more visibility to the listed company. stock exchange.
Why do companies deploy?
Now that you know what this concept means, it's easier to understand why some companies split their shares.
One of the main reasons is the liquidity of the assets.
With a lower value, they become more attractive and accessible to small investors. Consequently, they are more widely traded.
By increasing liquidity, it is easier to buy and sell the company's shares.
The investment becomes more accessible because with the share split, the price of the shares decreases.
In addition, this type of process can also indicate that the company in question is in a good phase, since it was the appreciation of the share that raised the price and motivated the split.
Examples of developments
Many companies, both in Brazil and in other countries, split their shares every year.
Below are some real examples of this type of process:
Renner Stores
In 2015, Renner split its shares - in the order of 1 to 5.
The day before the split, the unit value of the share was R$ 100. After that, the asset started trading at R$ 40.23.
Tesla
In 2020, Tesla announced that it would split its shares, also from 1 to 5.
The day after the announcement, due to increased demand for the company's shares, they rose 13%.
Now, in 2022, Tesla shares are about to get cheaper. In June, the company announced that its board had already approved a 3-for-1 stock split.
At Tesla, this process is taking place for the first time since August 2020.
BTG Bank
BTG Pactual carried out a stock split in June 2021.
In fact, the shares rose in value after the announcement of the procedures relating to the split of shares making up the share capital from 1 to 4.
Inter Bank
In May 2021, Banco Inter split its shares from 1 to 3.
The change also applied to the bank's units.
What are the advantages of a stock split?
There are several reasons why a company might opt for a stock split, as there are advantages not only for the company, but also for the investor.
See what these benefits are:
1. Accessibility
Shares that go through this process become more accessible, allowing more people to become shareholders in the company.
In other words, this process allows values to become more accessible to small investors, even those starting out in the market with smaller values.
It is also important to mention that the event itself increases interest in the company's shares, which can attract a greater number of investors.
2. Possibility of increased funding
For companies that want to invest more, the split can be a way of attracting more shareholders.
After all, the value of the securities didn't fall because of a devaluation, but because there was a huge increase in value, making it unfeasible for most investors to buy them.
Although it doesn't create value, the stock split process can generate greater interest in the company's shares.
Conclusion
Now you know how the stock split works, what it means in practice and what the benefits of this process are for a company.
In fact, this process also causes a great deal of movement in the market. In general, it allows small investors to buy shares that were previously trading at a very high price.
