Palantir Technologies (NASDAQ: PLTR) has been a rocket ship since early 2023. In just over 24 months, the stock has gone from under $8 to $115, an incredible 1,700% sprint. It’s safe to say that things have gone well for shareholders.
It’s also fair to wonder whether a stock split may soon be on the table. Investors generally love stock splits, and Palantir has developed a reputation for being especially friendly to individual investors. The stock has enjoyed a vocal following that has only grown louder as the share price has risen.
Should you be on alert for a stock split? Or, more importantly, should investors buy Palantir in anticipation of one? Here is what you need to know.
Sometimes, the most obvious answer is the correct one. Investors usually cheer stock splits because share prices go down, making it easier to trade the stock.
However, there is more to it than that. For starters, a stock split lowers the share price by proportionately increasing the number of shares. In other words, if you have one share of a stock trading at $1,000 and split it into 10 $100 shares, the stock’s value doesn’t change — you have more shares that still add up to the same amount. It’s like cutting a pie into halves and then quarters. More people can have some, but the pie doesn’t get any larger.
Additionally, the stock’s per-share revenue, profits, and other financials would split similarly. Perhaps the most important takeaway is that stock splits don’t change a stock’s fundamentals or valuation; they only lower the share price by dividing the company into more shares.
Stock splits can also send investors a message. If a company’s stock achieves a high share price, a stock split is sort of like management saying: Things are great here, so we want to make it cost less for individual investors to participate in owning our stock.
You can see below that much of Palantir’s investment success has come over the past year:
That means many of Palantir’s employees who have received stock-based compensation before 2024 are sitting on massive gains. Some people don’t want to cash out in large lump sums. Employees can more easily control their stock sales if the equity is in a larger number of smaller shares.
At the same time, a stock split helps individual investors who want to invest money into the company but don’t want to do so at over $100 per share. Many brokerages allow you to buy fractional shares, but still, many would prefer accumulating cheaper shares than adding fractions of a share at a time.