On Monday, I sent out a list of the five biggest names to watch this week that included Netflix.
But it didn’t make the cut because the final season of Stranger Things is finally coming out soon…
It made it because Netflix, Inc. (NFLX) announced a new stock split for the first time in 10 years.
[Learn how to get on this list every week]
Shares started trading around $110-$114 per share (down from over $1,000) that morning. And since then, I’ve gotten several questions about what actually happened and why it matters.
So, in today’s Mailbag edition, we’ll get talk about just that.
Let’s get started…
Q: What happens when my stock splits? I read that it doesn’t really change my valuation even though the stock price is lowered.
You’re absolutely right that a split does not change the valuation at the time of the split. So, if you owned $1,000 worth of stock before the split—you still own $1,000 worth after the split.
But what does change is the number of shares you own as well as the price. Take a 2:1 stock split for example… the price of these shares is cut in half, but the number of shares you own doubles. That means the overall value of your position is the same, just distributed differently.
Great question!
Q: Why would a company like NFLX even do a stock split? What’s the point if nothing changes?
It is interesting… and I understand why it could seem pointless on the surface. But for the right kind of company, stock splits can be a powerful move.
Think about it—if a stock’s trading at $1,100 per share, that can feel out of reach for a lot of people. But after a 10:1 split, that share price drops to $110 and suddenly becomes MUCH more affordable.
That alone can attract new buyers, increase trading volume, and even push the stock price 10 times higher over time.
It’s more of a chess move than checkers in the end.
Let’s take it a little further…
There are a few price behaviors I tend to watch closely when a stock split is announced. And one of them is a key, post-split move that can really benefit investors and traders alike:
First, the announcement itself can act as a catalyst. As soon as news of the split hits, traders want in because they know they’ll get more shares at a lower price. That increased demand alone can lift the stock price.
Next, in the days or weeks leading up to the split, investors who’ve been on the sidelines (or simply waiting to add to their positions) often step in and buy. That added buying pressure can drive the price higher before the split even takes effect.
Finally, after the split, the adjusted (lower) share price opens the door for a new wave of buyers who may have felt priced out before. And that fresh demand can drive the stock even higher from there.
In fact, we often see a strong move higher—before and after the split—which is why a well-timed stock split can be such a bullish signal.
It’s also where OPTIONS can really shine.
And next week, I’ll tell you exactly why… plus the strongest trade setups I’m seeing before Thanksgiving.
Enjoy your weekend!
Tom Gentile
America’s Pattern Trader
