Since P/E divides share price by EPS, the P/E ratio stays the same at the time of a stock split. However, if the share price after the stock split rises from $5 per share to $7.5 per share, the P/E ratio rises. If the market psychology favors the dilution, the effect is higher market capitalization and a higher P/E ratio than may have been the case without dilution. This stresses the importance of investor perception.
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