There are two kinds of stock splits, each serving different purposes and revealing different aspects of a company’s condition. The first is the reverse split, in which shares are consolidated to inflate the price. A 1-for-10 reverse split reduces the number of shares but raises their value tenfold, leaving the total investment unchanged. These are typically employed by companies in financial distress, often as a superficial attempt to meet listing requirements. Such moves are rarely a sign of strength.
The forward split, by contrast, increases the number of shares while lowering their price. A 3-for-1 split, for instance, would reduce a $600 share to $200 but multiply the holder’s stake by three. This is generally seen as a positive development, as it lowers the barrier to entry for retail investors. Yet it also creates a surge in trading activity, as new buyers are drawn in by the perceived affordability.
Stock splits can be a useful tool for companies with rapidly rising prices. They expand the investor base and improve liquidity for options trading, which requires large volumes. However, they are not a substitute for fundamental growth. A company’s inclusion in indices like the Dow Jones Industrial Average is also influenced by its price, though this is a flawed mechanism that disproportionately rewards high-priced stocks.
Nvidia’s 10-to-1 split in 2024 and Chipotle’s 50-for-1 split in 2024 illustrate the pattern. Both were driven by share prices exceeding $1,000, which made them inaccessible to many investors. Palantir Technologies (PLTR), by contrast, trades at $165 per share. Its recent 340% gain in 2024 and 118% year-to-date return have drawn attention, but its price remains within reach for most retail investors.
Palantir’s financials are impressive: $1 billion in quarterly revenue, 68% year-over-year sales growth, and a 43% increase in customers. Yet these figures do not necessitate a stock split. Companies like Alphabet and Tesla only split their shares after prices reached $2,000 or more. Palantir has not approached such levels. A split would be premature, not a mark of success.
As an activist investor, I remain skeptical of stock splits as a measure of corporate health. They are often a distraction from the real work of building sustainable value. Palantir’s future depends on its ability to deliver consistent results, not on the number of shares it issues. Until its price exceeds $500, the question of a split remains academic.
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2025-09-16 10:40