A stock split occurs when a publicly held company increases the quantity of its outstanding shares by dividing each share, also dividing the stock price by the same amount. MSN Money points out that this has a history of calling attention to these companies and the positive earnings that have increased their stock prices to the point of being splittable. This, in turn, can drive the stock prices up even higher. This can increase the return on your initial investment because now you have twice as many shares, which increases your base for potential earnings.

On the Other: There Are No Guarantees

Forbes' Investopedia cautions that, while splits can have a positive impact on share prices, splitting doesn't alter a stock's fundamentals in any way, and there is no difference in the company's market capitalization. If the stock was valued correctly before, any price increase might be short-lived because the stock is fundamentally unchanged despite its new selling price.

Bottom Line

A stock split can be a sign that a company is doing well, which might draw positive attention. The split in and of itself, however, does not indicate a change to a company's market capitalization or its stock's fundamentals, so it is unsafe to assume that a stock split will automatically be profitable.

Source:

Forbes: Investopedia: Understanding Stock Splits

MSN Money: How does a stock split affect the value of my investment?