Stock Dilution & why should you care
Stock dilution EXPLAINED
Stock dilution can be common with a lot of these small-cap junk companies.
What Are Diluted Shares? And why should you care?
A company’s shares become diluted when it introduces new shares to the market.
Dilution can happen through a stock offering. Or it can happen through the conversion of warrants, stock options, or convertible notes. Dilution increases the number of shares outstanding.
The main reason a company would dilute its shares is to raise money.
That’s why you see it so often in small cap stocks — because they tend to be sketchy companies operating on little to no budget.
They’re small, developmental companies. Some might not even have a product on the market. If there’s no product or sales, there’s no income.
A lot of these companies are usually desperate for cash. They need money to pay bills, make debt payments, pay employees, or further develop their product or technology.
0:00 - Intro to shares diluted & why should I care.
1:02 - So how Do Shares Get Diluted?
1:53 - Stock splits and stock dividends are also ways of creating new stock.
2:23 - Share dilution is legal as long as the company files the correct disclosures.
3:07 - This is an example of the SEC S-3 form.
3:33 - What Happens When Shares Get Diluted?
3:58 - What Are Undiluted Shares?
4:30 - Basic vs. Diluted Shares: What’s the Difference?
5:10 - Basic warning signs that might mean a company is about to issue more stock.
5:12 - Debt.
5:41 - Company Growth.
6:12 - Diluted Earnings per Share E P S
6:50 - How Does Share Dilution Affect Share Price?
7:45 - How to Calculate Diluted Earnings per Share?
7:50 - Diluted E P S = Net Income – Preferred Stock Dividends / Average Outstanding Shares – Dilutive Shares.
8:06 - How Can You Use Diluted E P S to Analyze a Business?
8:32 - Is Dilution Good or Bad for Stocks?
9:10 - The Diluted Shares Conclusion