Dilution is a sad fact of life when you invest in companies still growing into their market skins. Rule Breakers recommendation and OLED display innovator Universal Display
That's kind of what the market is meant to do, really -- act as an intermediary between companies in need of cash and capital in search of an investment. The coffers were starting to look a bit threadbare, and the market value of a Universal Display share has been on an absolute tear over the past year or so -- why not take the opportunity to shake investors down for some extra funds?
So my shares became a smaller slice of the market cap pie, but that's easily outweighed by the 44% price increase over the last 12 months, or a market-stomping 73% return for those who took the original newsletter recommendation to heart right away.
If one of my more established holdings pulled a 7% dilution stunt in one quarter, I'd be quite unhappy. Disney would pull in about $4.5 billion in that scenario, and Bank of America could land $15 billion in fresh capital. While that sounds tasty for the company, there are few situations that would make such a move necessary or even acceptable, as owners of these stocks typically look for stability and value preservation.
Not so for Universal Display, or True Religion Jeans, or Hansen Natural -- tapping into the market as needed is par for the course in small-cap land. It's a predictable risk that you'd need to consider before plunking down your own cash, and it's not necessarily all that evil.
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Universal Display is a Motley Fool Rule Breakers pick, Bank of America is a Motley Fool Income Investor recommendation, and Disney is a Motley Fool Stock Advisor selection. Whatever your path to profits, there's a newsletter for you -- try them all for 30 days, free of charge.
Fool contributor Anders Bylund owns every stock mentioned in this article -- Bank of America, Walt Disney, Hansen Natural, Universal Display, and True Religion. All of these stocks have given him good returns on the backs of very different financial models. You can check out Anders' holdings if you like, and Foolish disclosure can help you forget about dilution, or remember dilutive experiences long past.