What's the Deal With Stock Splits?

The Fool's top analysts discuss whether price dips are common when stock splits are announced.

Apr 27, 2014 at 8:00AM

In this edition of The Motley Fool's "Ask a Fool" series, Motley Fool analysts Jason Moser and Brendan Mathews take a question from a reader who writes: "Under Armour (NYSE:UA) announced a split, and the stock fell 5%. I am new to Foolish investing, and I don't know if this is common. What is the common correlation between stock splits and price changes?"
 
Jason and Brendan both explain that while stock splits can create interest for many investors because they typically give investors a higher number of shares, it doesn't change the bottom-line amount of money that a person has invested in the company. On the surface, splits don't usually matter and they don't create value in and of themselves, but there's also no question that splits can open up shares to a new buying demographic, and that can certainly push the price up in the short run. In the case of Under Armour, Jason and Brendan both think the share price had gotten a little ahead of itself thanks to a great holiday season and that the pull-back was probably more related to valuation than anything else. The bottom line for investors, though, is to not worry about splits and focus on the fundamentals of the business as a long-term investment.

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Brendan Mathews has no position in any stocks mentioned. Jason Moser owns shares of Under Armour. The Motley Fool recommends and owns shares of Under Armour. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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