I wish to address this dilution issue. Dilution normally refers to shareholder equity. If a company has ~$1 shareholder equity with an warrant exercise price of ~$5, then the deal is anti-dilutive.
If your comparing the pre-post earnings per share, it seems there must be a correction made to see what your paying for earnings growth, what you'r paying for shareholders equity, and what you think the company can get in the way of return on equity. For in round numbers that are also stale but illustrate the point;
4M shares @ $1/s equity=$4M pre-warrant
7M shares @ $3/s equity=$21M post warrant
With a constant return on equity, would you rather have 1 or 3 $$ per share working for you.
If you wait till later when equity is say $10/share, then the deal is dilutive.
Correcting for shareholder cash:
1) $1 earnings $1 cash, $21 price, I'd correct by saying I'm paying $1 for $1 cash, $20 for speculation @ PE=20.
2) $1 earnings $5 cash, $25 price, I'd correct by saying I'm paying $5 for $5 cash, $20 for speculation @ PE=20.
I heard this idea on the BNGO thread expounded by the WallStBum,
who signes as dax so I think of this correction as the dax factor
or maybee the corrected price as the dax value <gg>
Ricardo |
