Video game retailer GameStop announced Thursday that it will ask shareholders to approve a path to a stock split at its annual meeting.
The stock opened 13.4% over Thursday’s closing on Friday. GME has split once before: a two-for-one split in 2007. The stock price was around $ 50 at the time of this split. It trades at around $ 163 today.
If this feels like deja vu, it’s because it gets in the heels of oneon Monday. and have also recently announced plans to split their shares this summer. There has been renewed interest in GME and AMC since mid-March, when their stock prices began to rise again.
So when willshare its share? The date of the annual general meeting has not yet been announced, but historically the meeting will take place in June.
What does this share split mean for investors? Read on to better understand stock splits, how they affect stock prices and options, and what’s next for GameStop.
So what is 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 three-to-one, five-to-one and 20-to-one. 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 share is then adjusted accordingly.
For example, in a three-for-one split, if you hold one stock of shares worth $ 210 on the day of the split, it will become three shares worth $ 70 each.
Public companies are bound by the parameters of their charter of how many shares may be in circulation at any given time. If a company wants to increase the number of shares, e.g. for a share split or a public offering to raise capital, it must have the shareholders’ approval to do so. The company’s board of directors can then vote on whether to issue a share split. GameStop’s proposed share split would come in the form of a share dividend where new shares are issued to existing shareholders on a given cut-off date.
When the share split occurs, the share price is lowered, making it more accessible to retail investors and corporate employees with share compensation plans. The division also provides more financial flexibility for the company.
Note that a stock split is not the same as a stock offering. In a share split, the issuing company does not raise any capital for its own use.
How does a split affect the stock price?
In short – puns – anything can happen with the stock prices on the stock market in the short term. While we can not say what this will bring for GME’s stock, there is some precedent from historical stock split data. However, take it with a few grains of salt afterwardsin the stock market.
According to a Bank of America survey reported by Reuters, shares that are splitting are gaining 25% on average over the next 12 months, compared to a 9% growth in benchmark indices. However, this additional 16% of growth can be attributed to many factors in addition to the division itself, including organic business growth. Often there is a lot of trading done around splits, which creates volatility both before and after the split itself. With a super volatile stock like GME, the split could create some interesting price action.
What happens to my GME options during a split?
Options are affected in the same way as shares if they expire after the official day of the split.
As an example, in the case of a five-to-one split, if you hold a call with a strike price of $ 200, it will turn into five $ 40 strike calls. This gives ““more flexibility with their strategy: You can now mix and match, whether you sell or exercise them.
What’s next for GameStop?
The SEC filing indicates that the share split is intended to provide “flexibility for future business needs.” An updated compensation plan, called the 2022 Equity Plan, is also on the schedule for the annual shareholder meeting vote. GameStop will issue a proxy statement with more details about the votes and the share plan as well as the date of the shareholders’ meeting.
As for the direction of the company’s future, GameStop has announced plans to evolveand open one . We will keep you updated as we learn more about the division and the shareholders’ meeting.
GameStop did not immediately respond to a request for comment.