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Technology Stocks : Qualcomm Incorporated (QCOM) -- Ignore unavailable to you. Want to Upgrade?

To: T L Comiskey who wrote (113587)	2/18/2002 10:29:07 AM
From: Wyätt Gwyön	Read Replies (1) \| Respond to of 152472

For example a company that dilutes its stock by 2% a year will with compounding have 80% more shares after 30 years. In other words a slice of the company now will only be 55% as large at that time. this seems pretty obvious to me. when i calculate a NPV, i include the options-related dilution. this has a significant (negative) impact on my calculated NPV. the only point i would make is that 2% seems rather on the low end for many Nasdaq companies. The reason I think that the true cost of options is hard to calculate is that dilution is thought of as a one time event rather than the ongoing process that a substitute for compensation must be. i don't think it is hard to calculate--just use the assumed dilution factor to increase the ongoing share count (and thereby decrease future EPS). however, i would say few want to calculate NPVs in this way as the results may not be pleasing, imho. however, i guess he already realizes this (based on his 80% share increase calculation), and his real point is that the 2% dilution up front and its 80% implication down the line are not readily perceived by the market. and i agree heartily with this idea. imho, some pretty simple math shows it will be highly unlikely that companies diluting on the order of 3-6% a year will be able to keep up this practice indefinitely, without severely damaging their share prices and/or facing investor revolt. if the economy (and hence SPX earnings) only grows at 4% nominal, then 3% dilution means EPS growth is only 1% nominal, and in fact negative in real terms. 30 years of continuous negative real earnings growth is not compatible with a PE of 40 on the SPX imho.