Posted by: cardvic
In reply to: None Date:4/23/2006 12:20:52 AM
Post #of 3306
Before you read the below, let me reiterate, Im long on VWKM, I just think this is good info for members in general, I found this on another board.
Shares Outstanding are defined as the total shares issued and held by all investors. Public Float is the number of shares that are outstanding and available for trading by the general public, excluding shares held by insiders and restricted stock.
Don Penny, who is considered by many to be the Godfather of the OTC BB, believes that shares outstanding and float size could be the most important facts to consider when investing in penny stocks. Many times on the OTC BB, which is infamous for a lack of information, share data is either outdated, ambiguous or just unavailable. The SEC with its recently implemented filing rules on the OTC BB have certainly helped investors, however due to the nature of these stocks the current share data is always in question.
Shares outstanding and float data is constantly changing on these stocks due to insider selling, equity based acquisitions, reverse splits, forward splits, Reg S filing, private placements., and most notably debt payments. Most acquisitions on the OTC BB are paid for with equity and sometimes these companies are so short on cash that they use stock to pay for the electric bill! Dio caro! All of these corporate actions affect shareholders, and most times shareholders are unaware of dilution until it is too late.
According to Don Penny, dilution is the cancer of penny stocks. Some securities become so diluted that it would take millions of dollars worth of buying pressure to move the stock in any significant way upward. You can find many penny stocks with huge daily trading volume yet the Stock price barely moves $.01. Good examples include MVEE, MPTV, BICO and AREE. These stocks appear to have a ton of investor interest, but their floats are so diluted that it would take a major change for the stock to break out of its trading range. All things being equal, Don Penny prefers stocks with less than 15 million shares outstanding and less than 10 million shares in the float. These stocks may not be the as liquid as others, and you may have to stomach severe price fluctuations, however these are the penny stocks that really may “go to a dollar”. These penny stocks are exciting in that, with one favorable news announcement your investment can triple overnight.
One of the best examples of dilution can be seen in BIOCONTROL TECH (BICO). According to EdgarOnline, on 3/2000 BICO had 956,100,496 shares outstanding. Believe it or not, in October 1995 there were only 36,809,118 shares outstanding. There have been no forward stock splits. Every year it seems that BICO issues more shares.
Each time a company issues more shares, the percentage ownership of all current shareholders diminishes.
On the OTC BB too much dilution can be deadly. Generally the stock price will slowly move down getting closer and closer to zero. Then, the company will simply disappear all together or resort to a reverse- stock split, and you the investor will be left with fewer shares than you originally purchased. Over time, the company will begin to issue more post-split shares and the dilution cycle of disappearing wealth will repeat again. You original investment can be almost completely lost.
GB-ND
c |
