GameStop Stock Splits on Thursday: What Investors Should Know
If you buy shares before market close today, they will be eligible for the split.
GameStop will complete its 4-for-1 stock split this week after a months-long process. The new shares will be issued to shareholders of record at market close on Thursday, July 21. The cutoff date to be a shareholder of record is market close on Monday, July 18. This means you can still buy shares until 4 p.m. ET today and receive new shares Thursday. Trading will continue at the split-adjusted price when the market opens on Friday, July 22. GameStop was trading at roughly $145 Monday morning. If the stock split occurred around that price, the split-adjusted price would be roughly $36.
Stock splits occur for a variety of reasons and may increase the short-term volatility of the stock price and options market. Below, we lay out what this means for you as a shareholder.
So, what's a stock split?
A stock split essentially makes the stock more accessible and flexible. Stock splits can come in any ratio -- some common split ratios include 3-for-1, 5-for-1 and 20-for-1. In each case, on the official day of the split, the number of shares in circulation is multiplied by the split ratio and the value of the stock is then adjusted accordingly.
For example, in a 4-for-1 split, if you were holding one share of stock worth $120 on the day of the split, it would become three shares worth $30 each.
Public companies are bound by the parameters in their charter on how many shares can be in circulation at a given time. If a company wants to increase the number of shares, say for a stock split or a public offering to raise capital, it may need shareholder approval to do so. After that, the board of directors of the company can vote on whether to issue a stock split. GameStop's stock split will come in the form of a share dividend, meaning that you'll be issued additional shares for each share you own, as opposed to your original share literally splitting into four different pieces.
Once the stock split occurs, the share price is lowered, making it more accessible to retail investors and company employees with stock compensation plans. The split also provides more financial flexibility for the company.
Note that a stock split isn't the same thing as a stock offering. In a stock split, the issuing company doesn't raise any capital for its own use.
How does a split affect the stock price?
In short -- pun intended -- anything can happen to share prices in the stock market short-term. Though we can't say what this will bring for GME's stock, there's some precedent from historical stock split data. Take it with a few grains of salt, however, since GME is in a peculiar position in the stock market.
According to Bank of America research reported by Reuters, stocks that split gain 25% on average in the following 12 months, compared with 9% growth in benchmark indexes. This additional 16% of growth could be attributed to many factors besides the split itself, though, including organic company growth. Often, there's a lot of trading executed around splits, creating volatility both before and after the split itself. With a super volatile stock like GME, the split may create some interesting price action.
What happens to my GME options during a split?
Options are affected the same way shares are if they expire beyond the official day of the split.
As an example, in the case of a 4-for-1 split, if you're holding a call with a $200 strike price, it would become four $50 strike calls. This gives the holder more flexibility with strategy: You can now mix and match whether you sell or exercise them.
What's next for GameStop?
The SEC filing denotes that the stock split is intended to provide "flexibility for future corporate needs." As for the direction of the company's future, GameStop has announced plans to develop cryptocurrency partnerships and open an NFT marketplace.