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Why did Walmart decide to split its stock price?

All Walmart shareholders have probably noticed that Walmart’s stock price has gone from nearly $180 to $59 a share. This looks like a massive decline at first but this isn’t what happened. The stock price of Walmart did not lose its value, it only experienced a stock split.

While a stock split might seem like a price change, it's important to understand that Walmart didn't actually lower the value of the company when it split its stock. The primary reason for the split was to make it easier for employees to purchase shares through the company's stock purchase plan. 

The stock split was announced in January 2024 that it would be structured as a 3-for-1. The first time Walmart did a stock split was in 1999. Shareholders would receive two additional shares of common stock for each share they hold. This means for every one share held by an investor, there will now be three. This means that the number of outstanding shares in the market tripled, while the price per share will be reduced by dividing the old share by three. So far this year, shares are up more than 11%, outpacing the S&P 500’s nearly 7% rise.

The stock split will increase total outstanding shares from 2.7 billion to 8.1 billion shares. Although the stock will trade at a lower price, it won’t change the underlying value of existing investments in the company.

Sam Walton, Walmart's founder, believed that employees should have an accessible way to participate in the company's ownership. As the company grew, the individual share price became quite high, making it difficult for many employees to buy whole shares through payroll deductions. Thus, by splitting the stock 3-for-1, Walmart essentially divided each existing share into three shares. This lowered the individual share price, making it more affordable for employees to participate in the stock purchase plan.

A lower share price can attract more potential investors, increasing trading activity and liquidity. Some investors might perceive a lower share price as more "affordable" or accessible, leading to increased buying interest. However, this is purely psychological and doesn't reflect any fundamental change in the company. And a company's decision to split the stock might be seen as a signal of confidence in its future growth potential, potentially boosting investor sentiment. However, this is subjective and shouldn't be the sole basis for investment decisions.

While encouraging employee ownership was the primary reason, the lower share price also had the secondary effect of making it more accessible for individual investors to buy whole shares of the company.

In total, more than 400,000 of its employees currently participate in the company’s Walmart Associate Stock Purchase Plan, which gives them the ability to buy stock through payroll deductions. It also provides a 15% company match on the first $1,800 each year, according to Walmart.

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