What it means
Dilution happens when a company issues new shares - through secondary offerings, employee stock-based compensation, conversions, or acquisitions. Each existing share now represents a smaller piece of the company.
Why it matters
Stock-based comp is the most common ongoing dilution. A company growing revenue 20% while diluting 5% per year is only growing per-share value 14%. The gap matters and is often missed.
How to use it
Look at diluted shares outstanding YoY. Tech companies with 5-10% annual dilution from SBC need to outgrow it to create per-share value. Buybacks can offset dilution but rarely fully.
Take it further
Want a worked example or a deeper dive? Ask Rocky how this concept applies to your specific watchlist or trade idea.
Ask Rocky