What is Split Adjusted?
Split adjusted refers to how historical stock prices are portrayed in the event that a company has issued a stock split for its shares in the past. When reviewing price data, whether in tables or on charts, split adjusted data will reflect the increase in price as if there had been no split in the shares. It does this by anchoring the current price and working backwards. This gives the false impression that historical prices may appear lower than they actually were at the time. However, it gives a more correct representation of the amount of growth those shares have experienced from past until the present day.
Key Takeaways
- Split adjusted prices represent historical price data by anchoring the current price and working backwards.
- This makes the historical data more accurate regarding growth and returns based on share price alone.
- Split-adjusted date may give the false impression that a stock was drastically less expensive in the past in nominal value.
Understanding Split Adjusted Stock Prices
Stock splits reduce the price of shares by a given fraction to accommodate the creation of new shares. For example a 2-for-1 split means the price is halved while shares are doubled, a 3-for-1 split implies the price is reduced to one-third while the share count is tripled, and so forth.
Companies can split their shares for multiple reasons, but the primary reason is to keep their share price affordable to most people. The thinking is that it will have higher investment interest, wider ownership, and a stronger secondary market. All of these components contribute to make it easier and cheaper to raise additional capital with a primary market offering of additional shares.
Some companies see this action as a gimmick and refuse to split their shares. Thus Alphabet, Berkshire Hathaway, and Amazon, have very high share prices, while companies who have offered share splits, like Apple and Microsoft, have comparatively lower share prices. Regardless of how a corporations officer sees the matter, stock splits affect historical prices in ways that make it difficult for researchers to track the amount of growth an investor will experience.
Stocks can reverse-split, creating fewer shares at a higher price, again with valuation remaining the same. Reverse stock splits, also known as a stock consolidation or share rollback, create higher priced shares. There are a number of reasons why a company may decide to reduce its number of outstanding shares in the market, which, unfortunately for the company, may be the result of poor stock performance. In the vast majority of cases, a reverse split is undertaken to fulfill exchange listing requirements.
Other Considerations for Split Adjusted Stocks
Investors owning stocks that undergo splits see little effects in terms of the value of their holdings overall. The number of shares in their account changes, but not the balance. One hundred shares of a stock at $50 per share has the same value as 200 shares of the same stock trading at the split price of $25 per share.
Per share data, such as earnings, revenues, sales, etc., will indeed change. However, the math says that ratios, such as the price-earnings (p/e) ratio, will remain the same. Price per share and earnings per share both split the same way.
Investors looking at charts will also notice that historical volume will change according to the split ratio, although in reverse. In other words, a stock that traded 1,000 shares on a given day in the past later undergoes a two-for-one split. Looking at a split-adjusted chart after the split occurs will show 2,000 shares at half the price for that same day. Again, the dollar value of the shares traded that day will remain the same. A slight drawback to this is that the new data may make some stocks appear to have been highly liquid for a longer period of time than they actually were.
While split adjust usually refers to stock prices, options on underlying split stocks are also split-adjusted by increasing the number of shares covered by the terms of the option. This conversion is done by the same split ratio as the underlying shares, and the strike price is divided by the split ratio. This is also the reason option quotes show fractional options strike prices, or non-standard contract sizes, following stock splits.
FAQs
Split adjusted refers to how historical stock prices are portrayed in the event that a company has issued a stock split for its shares in the past. When reviewing price data, whether in tables or on charts, split adjusted data will reflect the increase in price as if there had been no split in the shares.
What does split-adjusted mean? ›
Price-(Split Adjusted) represents the stock price after being adjusted for splits. Example: XYZ has been steadily trading at $50.00 per share. Today XYZ has a 2 for 1 stock split.
How do stock charts adjusted for splits? ›
(Example: To adjust for a 2-for-1 split, divide 1 by 2. The factor is 0.5.) Just like with dividend adjustments, we multiply all historical prices prior to the split by 0.5. With splits, we also adjust the volume in the opposite direction of prices, so that the total liquidity remains the same.
How are options adjusted for stock splits? ›
For example, if you buy a call option that controls 100 shares of XYZ with a strike price of $75. If XYZ announces a 2:1 stock split, the contract would now control 200 shares with a strike price of $37.50. On the other hand, if the stock split is 3 for 2, the option would control 150 shares with a strike price of $50.
Is it better to buy before or after a stock split? ›
It's important to note that it's not a good idea to buy a stock just because the company launched a split -- it's simply a mechanical operation. A stock split itself won't push a stock's value higher or lower.
What is the split adjusted closing price? ›
While the closing price simply refers to the cost of shares at the end of the day, the adjusted closing price takes dividends, stock splits, and new stock offerings into account. The adjusted closing price is a more accurate indicator of stock value since it starts where the closing price finishes.
What is the adjusted price of a stock after a split? ›
For example, in a 2:1 stock split, you could own two shares worth $25 instead of 1 share worth $50. In such a case, if, for example, the closing price was $100, the adjusted closing price of each share after the stock split would be $50 each.
Is it good if a stock splits? ›
It's basically a draw, and the value of your investment won't change. However, investors generally react positively to stock splits, partly because these announcements signal that a company's board wants to attract investors by making the price more affordable and increasing the number of shares available.
Why do options get adjusted? ›
An adjusted option exists when the original terms of the option contract are amended. Various types of corporate actions such as, stock splits, mergers, dividends, acquisitions, spin-offs or similar events relative to the underlying may cause an option to become adjusted.
What are the disadvantages of a stock split? ›
Disadvantages of a Stock Split
A company cannot rely on a stock split to increase its value or market cap. A stock split divides the existing shares, thus keeping the market cap the same as before. Not to forget, a company must invest some amount to conduct a stock split.
While a split, in theory, should have no effect on a stock's price, it often results in renewed investor interest, which can have a positive effect on the stock price.
Why do stocks go up after a split? ›
Although a split alone does not change a stock's valuation, market analysts said the lowered per-share value of the stock woos individual investors, who tend to trade in smaller lots due to their limited funds in comparison to institutional investors, who have deeper pockets.
Why do stocks go down after a split? ›
Instead, a stock split involves issuing more shares to current shareholders and this will result in more shares trading at a lower price; current shareholders will end up with the same dollar value of stock as they had before the split.
What does split mean on a balance sheet? ›
Within the paradigm of the double entry accounting system, which is what I've worked with for years, all transactions are "split" in the sense that all transactions impact at least two accounts (thus "double entry").
Does a stock split mean more money? ›
Is the split worth it? – Stock splits have no tangible impact on a company's total value—they simply create more shares at more affordable prices. Nor does a split change the total value of an investor's portfolio holding per se.
What is a good stock split ratio? ›
The most common split ratios are 2-for-1 or 3-for-1, which means every single share before the split will turn into multiple shares after the split. A company elects to perform a stock split to intentionally lower the price of a single share, making the company's stock more affordable without losing value.
