Share dilution is an important concept for any investor to understand. While revenue and profits are key, what ultimately counts is the value on a per-share basis. That's where share dilution comes in. The number of shares outstanding for publicly traded companies tends to vary from quarter to quarter, depending on whether a company repurchases shares or dilutes existing shareholders.

How share dilution affects investors
Although you should know how share dilution can sap value from your portfolio, you should also be aware of the opposite effect: share reduction. Companies can reduce their shares outstanding through share buybacks, a form of returning capital to shareholders that will make individual holdings worth more by raising per-share earnings. Some companies have a long track record of repurchasing shares, which helps them grow earnings per share over time.
Share dilution isn't always a bad thing. Sometimes, a well-timed secondary offering makes sense and can drive long-term value for a company by raising cash to expand or take advantage of a new opportunity.
Similarly, share-based compensation isn't necessarily bad either, but investors should be aware of how much dilution it's causing and how fast shares outstanding is growing. As long as it's reasonable, SBC is generally justified.