There has been an unusual buzz around Netflix (NSDQ: NFLX) this week – besides the pent-up anticipation for the final season of the hit show Stranger Things.

If you haven’t heard, the streaming giant just announced a 10-1 stock split. The decision isn’t surprising, considering NFLX is one of the few stocks trading in four-digit territory. It’s currently changing hands near the $1,100 level.

By next Monday, stockholders of record will have received nine additional shares for every share they currently hold and the stock will begin trading on a split-adjusted basis. At that point, every one share valued at $1,100 will become 10 shares at $110 apiece.

Mathematically speaking, this is a non-event. 10 multiplied by $110 is still $1,100. Investors will see no change in the value of their holdings, or their proportionate ownership claim on the company’s assets and earnings. If you hold 2 slices out of 8 or 20 thinner slices out of 80, that’s still one quarter of the total pie.

Netflix produced $8.7 billion in net income last year, which breaks out to around $20 for each of the 440 million shares outstanding. Soon, there will be 4.4 billion shares out there, diluting earnings to $2.00 per share. But since the shares will be 1/10 of the previous price, the P/E ratio will be unchanged.

$1,100/$20 = 55
$110/$2 =55

In other words, one share of this business will still be priced at 55 times trailing earnings. And the overall market capitalization? 440 million shares at $1,100 or 4.4 billion shares at $110. Either way, it’s still $484 billion.

The stock only has the appearance of being cheaper.

So then why go through all the fuss?

Well, Netflix management expressed a desire to “reset the market price of the company’s common stock to a range that will be more accessible.” Historically speaking, high share prices have spooked retail investors. For some, it’s purely a psychological preference. A desire to hold two $50’s rather than a $100 (most splits are 2-1).

Others like to invest in even 100-share lots, which in this case would have required over $100,000. Personally, I find that logic a bit flimsy – it makes far more sense to first determine a suitable dollar investment amount for your portfolio and let that dictate the number of shares than vice-versa.

In the past, there was also a fear of “pricing out” small investors. But that’s no longer an issue, considering most brokerages now allow for fractional share ownership. Even a first-time investor with only $500 could still start out with about half a share.

There are other factors. Lower share prices do promote greater liquidity. They also facilitate call options trades (which are also in 100-share blocks). More importantly, stock splits almost always send an unmistakably bullish signal. If we don’t do something, our unstoppable stock might reach the stratosphere.

Would that be a problem? Not really. Warren Buffett doesn’t play this game. Berkshire Hathaway (NYSE: BRK-A) has famously never split and the class A shares now command a price of $747,366. I’m sure there are plenty of people who thought it seemed pricey at $200,000 or $300,000.

But this is the exception. Most successful stocks undergo the occasional split to stay within a desired trading range. There were nearly 170 splits in the first half of last year – the busiest such stretch in over a decade.

Wal-Mart (NYSE: WMT) went through a 3-1 split in February 2024, adjusting its dividend accordingly. Nvidia (NSDQ: NVDA) split 10-1 in June. The most notable was a 50-1 split undertaken by Chipotle (NYSE: CMG), which lowered the share price from around $3,250 to $65.

In case you’re wondering, there are reverse splits as well (actually, they are more common). The whole process works in reverse, shrinking the number of shares and artificially raising the share price. This is usually done by penny stocks to meet exchange listing requirements.

Do stocks continue to rise after a split? History resoundingly says yes (at least in most cases). Bank of America examined data going back to 1980 and found that stock splits resulted in an average gain of 25% in the 12 months following the transaction.

The real question is whether that gain was triggered by the event itself or simply a continuation of the favorable business and industry fundamentals that necessitated it to begin with. Probably a bit of both.

Be careful, though. If the stock was overvalued before the split, this accounting gimmickry won’t change that.

By some metrics, Netflix is about twice as expensive as the S&P 500. You could argue that the firm’s powerful scale advantages, operating leverage and growth rates justify the premium price tag. But that’s a discussion for another day.

For the record, Morningstar calculates a post-split fair value of $77 per share.

The point is, absent any other news, NFLX stock won’t suddenly be any more attractive next week than it is today.