Suppose you checked the price of a stock that you owned and discovered that overnight the price had dropped by around 33 percent. You would certainly be shocked and inclined to look for the reason. If the stock had undergone a 3-for-2 split, you'd find your stock's price had indeed dropped, but you now owned more shares.
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More Shares, Same Value
Suppose you own 100 shares of a stock priced at $20 per share, for a total value of $2000. If the company announces a 3-for-2 split, then you would own 150 shares of stock valued at $13.33 per share. Companies split their stocks to make them more attractive to investors. who are more inclined to purchase moderately-priced stocks that expensive ones. This increase in investors causes the price to continue to rise. A stock split generally is considered a bullish event, but too many splits instituted too quickly could be a warning signal that the stock price is peaking.