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> Shouldn't these companies be able to issue stock to get some cheap capital to continue growth/hiring? Yes, but then the stock price would go down, which obvi

> Shouldn't these companies be able to issue stock to get some cheap capital to continue growth/hiring? Yes, but then the stock price would go down, which obviously isn't allowed.

FrustratedMonky 3y ago
? Not allowed. It is done all the time. Companies can issue new stock. or? are you being sarcastic about c-suit not wanting 'stock price to go down'? which could be a consequence of issuing new stock?
- gtirloni 3y ago
  The latter for sure.
- deleted 3y ago
  [deleted]
fsckboy 3y ago
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.
- rsanek 3y ago
  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.
  - bostonsre 3y ago
    > why would a company ever do a stock buyback if changing the amount of issued stock didn't change the price? Buy low/sell high maybe? They buy their stock when the price is low and they think it is undervalued so that they can sell it later when the price more accurately reflects the value or even better when the price is overvaluing their stock.
  - diogocp 3y ago
    > offer up more shares to a market without changing demand But demand does change, because the company is expanding its balance sheet. You end up with more slices of a bigger pie. Compare to a stock split, which keeps the pie size constant.
  - jallen_dot_dev 3y ago
    No, the company becomes more valuable after the raise. It's more slices of a bigger pie == each slice is the same size as before. > why would a company ever do a stock buyback if changing the amount of issued stock didn't change the price? The company used its cash to buy its own stock. Fewer slices of the same pie == each slice is bigger than before.
    - ImPostingOnHN 3y ago
      The company is worth what it's worth, according to investors, no matter how many slices you piece it up in. If you issue more shares, people will be willing to pay less for each one. Yes, adding cash to the balance sheet increases the book value, but the only way to add that cash is to sell the new shares, and the only way to sell the new shares is to offer them for cheaper than the current asking price. Put another way, if prospective investors wanted to buy more shares at the current asking price, they could, from an existing owner. The people who want shares but haven't bought, demand a lower price for them.
      - fsckboy 3y ago
        the company is worth MORE when people buy the new stock shares. Let's say you have a company worth $2 and you have two shareholders, each with one share. So that's a dollar a share, right? Now you sell a third share for a dollar. The company that was worth $2 is now worth $3 because it has its old assets that were worth $2, and it has NOW has a dollar in cash that it didn't have before. Now it's a $3 company. This is not advanced analysis, this is simple counting. Trust me, I know how it works, I got a graduate degree in it, and you're simply wrong. what you may be thinking of is when the company issues shares and gives them as incentives/rewards to officers/directors/employees. That does dilute ownership, but sale of shares does not.

> Shouldn't these companies be able to issue stock to get some cheap capital to continue growth/hiring? Yes, but then the stock price would go down, which obviously isn't allowed.

FrustratedMonky 3y ago

? Not allowed. It is done all the time. Companies can issue new stock. or? are you being sarcastic about c-suit not wanting 'stock price to go down'? which could be a consequence of issuing new stock?

gtirloni 3y ago
The latter for sure.
deleted 3y ago
[deleted]

fsckboy 3y ago

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.

rsanek 3y ago
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.
- bostonsre 3y ago
  > why would a company ever do a stock buyback if changing the amount of issued stock didn't change the price? Buy low/sell high maybe? They buy their stock when the price is low and they think it is undervalued so that they can sell it later when the price more accurately reflects the value or even better when the price is overvaluing their stock.
- diogocp 3y ago
  > offer up more shares to a market without changing demand But demand does change, because the company is expanding its balance sheet. You end up with more slices of a bigger pie. Compare to a stock split, which keeps the pie size constant.
- jallen_dot_dev 3y ago
  No, the company becomes more valuable after the raise. It's more slices of a bigger pie == each slice is the same size as before. > why would a company ever do a stock buyback if changing the amount of issued stock didn't change the price? The company used its cash to buy its own stock. Fewer slices of the same pie == each slice is bigger than before.
  - ImPostingOnHN 3y ago
    The company is worth what it's worth, according to investors, no matter how many slices you piece it up in. If you issue more shares, people will be willing to pay less for each one. Yes, adding cash to the balance sheet increases the book value, but the only way to add that cash is to sell the new shares, and the only way to sell the new shares is to offer them for cheaper than the current asking price. Put another way, if prospective investors wanted to buy more shares at the current asking price, they could, from an existing owner. The people who want shares but haven't bought, demand a lower price for them.
    - fsckboy 3y ago
      the company is worth MORE when people buy the new stock shares. Let's say you have a company worth $2 and you have two shareholders, each with one share. So that's a dollar a share, right? Now you sell a third share for a dollar. The company that was worth $2 is now worth $3 because it has its old assets that were worth $2, and it has NOW has a dollar in cash that it didn't have before. Now it's a $3 company. This is not advanced analysis, this is simple counting. Trust me, I know how it works, I got a graduate degree in it, and you're simply wrong. what you may be thinking of is when the company issues shares and gives them as incentives/rewards to officers/directors/employees. That does dilute ownership, but sale of shares does not.