In theory, this shouldn’t happen. A split doesn’t affect a company’s business fundamentals, and investors averse to a stock’s high price tag can simply buy fractional shares instead. Yet splits are causing day traders to pile in, fueling rallies in these companies’ shares.
Tesla was by far the most-purchased stock among Fidelity customers on Monday. Amazon’s announcement attracted “significant” retail interest and was likely the biggest factor in the stock’s outperformance during a week when the Nasdaq 100 fell almost 4%, according to Vanda Research.
“It is just a sentiment effect,” said Gina Martin Adams, chief equity strategist at Bloomberg Intelligence. “Retail investors perceive price differently – and the stock is now attainable at a lower price.”
There may be other reasons for a company like Tesla to consider increasing its outstanding shares.
“The split can make the stock look more attractive, luring new buyers into the stock to help keep the recent momentum,” said Lindsey Bell, chief markets and money strategist at Ally Invest Securities.
