Those who follow the stock market know that to say things have been “interesting” lately is somewhat of an understatement.
One bit of intriguing news involves Nintendo’s (NTDOY) recent announcement of a stock split, which is scheduled for Oct. 1.
Can you use information about this development to make some extra money? Find out about stock splits and whether Nintendo’s move makes it a good investment to buy.
What is a stock split?
A stock split happens when companies increase the overall number of shares that are available in a company. This makes it more affordable for investors to buy shares. For example, many investors find buying 15 shares at $150 easier on their wallet than purchasing one share at $1,500.
Why would it be in a company’s best interest to split its stock? Increasing the number of shares boosts a stock’s liquidity, making it easier to trade.
A stock split doesn’t change the value of a company, nor does it affect the value of anyone’s investments. While the number of shares that an investor has will change, the value of the shares does not.
Are stock splits good investments?
This isn’t a question with an easy “yes” or “no” answer. Instead, it’s a “maybe.”
Stock splits can be advantageous for somebody looking to invest in shares that would otherwise be cost-prohibitive. They’re good news for anyone looking to invest in a famous brand-name company that previously was out of reach.
Famously, Amazon was recently the site of a stock split when the company adopted a 20-for-1 model that made it much more cost-effective for investors to buy a share of the company.
Some financial experts also take stock splits to be a sign of a healthy company, because they usually mean the stock was so desirable that it became expensive to purchase.
But it’s not always that simple. In fact, some thriving companies will purposefully keep their share prices high to add to the allure of the stock. Berkshire Hathaway’s Warren Buffett has refused to split his company’s class A shares, saying he wants to attract serious investors who have “long-term horizons.”
Just because a stock is at a more accessible price point doesn’t make it a good investment, however. Think of it as a superficial change more than anything. It does not alter the underlying value of the investment.
What is Nintendo and how did the stock split come about?
Gamer or not, you’re likely familiar with Nintendo, the company responsible for the Super Mario franchise and, most recently, the Switch console.
Many people would love to have a piece of the Kyoto-based company because of the name alone. But up until recently, this wouldn’t have been feasible for the casual investor — especially not in Japan.
Investors in the Japanese stock market have to buy shares in “lots” of 100. Prior to the announced split, the share of Nintendo (NTDOY) stock was $455, which is steep on its own. Multiply that by 100, though, and the cost of investing is quite high.
Now that Nintendo is doing a 10-1 stock split, it will become easier than ever to invest in the company.
American investors aren’t bound by the 100-lot requirement of the Japanese stock market, and have always had the ability to buy single shares.
Is it wise to invest in Nintendo now?
Some investors are calling Nintendo’s stock split unusual and are trying to explore the possible motivation behind the move. Reports highlight the fact that Switch sales are down and many of the company’s products are affected by global supply-chain issues.
But in truth, it’s impossible to know whether buying NTDOY is a good or bad decision. Like any other stock purchase, time will determine whether it’s a good buy.
The only thing that can be said for sure is that it is likely foolish to buy — or not buy — the stock simply based on the news of the stock split alone.
Nintendo’s stock split makes it easier for Japanese investors to buy into the company, but it doesn’t change much for American investors — they long have been able to try to make some extra cash by investing in Nintendo at a reasonable cost.
If you invest in mutual funds or ETFs, stock splits don’t make a big difference because you are putting your money into well-diversified investments. And that probably eliminates one more source of money stress you do not need.
More from FinanceBuzz:
- Get $3-$300 in free stock when your account is approved*
- Invest in 1000s of stocks and ETFs with fractional shares—no account minimums
- Follow friends in a social feed and learn from a diverse community of investors
- * Free stock offer valid for U.S. residents 18+. Subject to account approval.