issuing stock and selling it into the market doesn't make the stock price go down. Raising money for this activity on a large scale is why the stock market exists.
The value of the existing company "before" remains the same, and the sale of the new shares brings cash into the company at the selling price, so those new cash assets exactly balance out the dilution of ownership.
If anything it might increase the value of the company if shareholders believe that the same "profit multiplier"/ROE will be applied to the new cash, for example if a profitable restaurant chain sells new shares to get the cash to open and operate new restaurants in new locations. Of course, changes to the share price are due to changing expectations so that will occur as information about the pending transaction is incorporated into the hive mind and not necessarily at the moment of share sales.
this doesn't require any advanced analysis, it's simple supply and demand. offer up more shares to a market without changing demand and the price per share must go down.
think about it the other way -- why would a company ever do a stock buyback if changing the amount of issued stock didn't change the price? there's a reason buybacks are considered essentially the same as dividends.
FrustratedMonky|2 years ago
or? are you being sarcastic about c-suit not wanting 'stock price to go down'? which could be a consequence of issuing new stock?
unknown|2 years ago
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gtirloni|2 years ago
fsckboy|2 years ago
The value of the existing company "before" remains the same, and the sale of the new shares brings cash into the company at the selling price, so those new cash assets exactly balance out the dilution of ownership.
If anything it might increase the value of the company if shareholders believe that the same "profit multiplier"/ROE will be applied to the new cash, for example if a profitable restaurant chain sells new shares to get the cash to open and operate new restaurants in new locations. Of course, changes to the share price are due to changing expectations so that will occur as information about the pending transaction is incorporated into the hive mind and not necessarily at the moment of share sales.
rsanek|2 years ago
think about it the other way -- why would a company ever do a stock buyback if changing the amount of issued stock didn't change the price? there's a reason buybacks are considered essentially the same as dividends.