What are SHARES OUTSTANDING? | Stock Market Basics

thank you for joining everything money channel we're glad you're here paul and i are talking today about what i think what we think is one of the most important aspects in looking at the fundamentals of a company and it's their shares outstanding paul as a normal person for years i couldn't quite figure this out what do you mean shares numbers there are a set number of shares a company has as it creates new owners part owners of a company this number surprise to me can increase or decrease there's a lot of variables that go into this and so we want to go over today in this video what is shares outstanding why it's important to look at and what it means if it's going up or down over the years in terms of your ownership of a particular company and i present to you the manned myth paul gaber the ceo of sears i watched groundhog day yesterday did you again i just had you i was editing a wedding i'm going to say yeah so go ahead paul tell us about shares outstanding why is it a fundamental platform in one of our eight pillars which is pillar number five so this is actually probably my favorite pillar not that i think it's the most important one it's my favorite because it's the most overlooked one people don't look at this and i call it a silent killer why is that dilution would be number one to think about solutions a big thing it's a way for a company that they don't really people don't realize actually hurts them and here's an example let's say a company makes ten dollars per a per year just to keep it simple ten dollars a year let's say they have 10 shares outstanding how much is that per share one one ten dollars per share ten dollars per year divided by ten shares one dollar per share now let's say they want to acquire a company for two dollars they're going to issue two more shares okay now how do they do that they just talk to me like i'm a dummy these are the drum up yes they just go out there and they create two shares it's part to do with their scc docs and everything like that okay let's not worry about that what matters is they exist they can do it okay so they issue two more shares the company made ten dollars now they have 12 shares outstanding how much they make per share now 80 cents 83 cents per share so guys the same company that made 10 went from 10 shares of 12 and their and their income per share went from a dollar to 83. what this means is is you as a shareholder if you own the company at 10 shares you now went from owning one out of 10 shares to 1 out of 12 shares because they don't give you a bigger piece of the shares they're issuing more shares they're cutting up the pizza pie into more slices you're getting a smaller piece of the pie for doing nothing so a lot of people look at a company and say oh look the revenue and profit's increasing well yeah let me ask you this question if the company went from 10 in profit to 15 but they issued five more shares they still made a dollar per share they went from 10 in 10 shares to 15 of profit and 15 shares so even though the company's profit went up 50 your per share amount stayed the same this is a silent killer it is a it's a very misunderstood thing because most people think that companies are looking at this is not looking after your your every interest however some companies do it and it's a smart thing to do when is that stuff well i was just gonna say this is not to be confused with a stock split completely different yeah so they're actually creating more shares and selling them off now this is a stock split if you have one share and they split two for one you now have a second share they give you more shares yeah and then the valuation is pretty much the same exactly that just sounds better in terms of a actual retail price price stock but but in this case this can be good and bad paul if for a highly inflated stock price if a company can sell off more shares they can basically make money so i'm making money go on tell me so a company can raise money in two different ways equity or debt if your company's massively overpriced and people are all about your company and they're willing to pay you a huge premium for it issue more shares why take on the debt just issue them more shares but if a company is undervalued and they're issuing shares i look at the company saying what are you doing you should be buying shares back because if they buy shares back they're essentially investing themselves and decreasing the number of shares outstanding so in the same example let's say the company went from ten dollars to fifteen dollars per ship per year in profit but went from ten shares down to seven shares they took their dollar in profit to a little over two dollars two dollars and fifteen cents i believe two dollars and seven cents whatever the number is two dollars and ten cents so even though profit went up by fifty percent profit per share over doubled and that's the idea behind it if a company is overpriced by to issue those shares that's fine tesla is an example we're going to give shortly to show these examples tesla's massively or priced they're going to issue more shares like crazy what the investors the tesla don't realize is it's hurting them in two ways they're paid to time for a company and they're issuing more shares now granted is that better than issuing debt that everybody's pay sure it can be it is usually but if a company is undervalued you want them buying their shares back because they're essentially investing in themselves and buying undervalued price shares that's a good way to unlock some value a company that might be their earnings might be the same not going up now all of a sudden they go from a dollar ten dollars in profit over ten shares to ten dollars in profit over seven shares that's a dollar forty or so roughly so their per share profit went up forty percent even though their profit overall stayed the same now some people might sit there and say it's a manipulation and sometimes it is because some executives might be paid based on where the stock price goes and the easiest way to do it is to buy shares back and inflate that per share profit this is all part of understanding are the board of directors is the ceo on your side or not if they're a very undervalued company you want them buying those shares back you want them doing that they're investing their cash at a high rate of return by buying back there especially they're paying a dividend let's say if they're paying a four percent dividend when they buy those shares back they're saying that four percent dividend they have to pay the four percent of that share anymore they're issued to take the shares and put them away so this is part of the things that people don't realize a company that is stagnant can do very well for you they're buying shares back strategically a company that's overpriced is kind of doing a better job by issuing shares instead of taking on debt and owing it to somebody in the future that makes sense should we look at some companies let's look at some companies we're gonna look at two companies today one that's buying a lot of shares back and one issuing a lot of shares one that's buying a lot of shares back is apple so look at let's look at apple in the last 10 years their revenue has gone from 142 billion to 325 billion that's huge let's look at their profit seth their profit has gone from 38 billion to 76 billion it's doubled in profit look at their shares outstanding 26 billion down to 16.75 so guys not this is like amazing it's such a big company how are they going to grow more and more the way they're going to provide a lot of value to their investors is they doubled their profit and decreased the number of shares by six by 33 percent maybe even more whatever that number is that's at 40 that's an insane amount of growth for them so they're sitting there saying hey investors thank you siri so much for being with us we have all this cash flow we don't know what to do with it because it's so hard to reinvest hundreds of billions of dollars instead we're gonna buy shares back and drive up that per share we're gonna give the current investors more and more share of the company by buying our shares back if you like the software behind paul this is our everything money software we offer through our patreon you can become a patreon member and get access to this today for a low 80 cents per day something 80 cents per day all right now let's look at a company like tesla tesla very hype company you claim it's overpriced a lot of people would agree with you but there's still a lot of fandom and hype around this yeah so they love this company including myself hell i drive one go ahead paul now their revenue is skyrocketed over 20 times right 100 almost 20 times 185 million to 36 billion their profit well had nowhere to go but up a loss of 300 million to a gain of 1 billion their first year of profit in the last 10 years look at their shares guys good boy 523 million 524 million and 961 million and every year they're issuing more and more shares i don't blame them why take on the debt just be like hey all these morons out here paying us through the nose to this company let's just issue them more shares they'll eat it up and love it yeah they'll eat it up of course i would be doing the exact same thing why make your balance sheet worse just dilute the heck out of everybody they love you anyhow so what does this mean guys if they keep on this trajectory and they double their shares again even the company makes 10 billion you're only getting half of that share that you would have gotten have they just kept the shares the same that's the big thing to remember it will hurt you in the long run now i understand why tesla did that they would rather issue shares at an expensive price valuation than issue debt that they're gonna owe no matter what if you if you if you if you're issuing shares at let's say for example your company it's really worth fifty dollars a share but it's selling for a hundred in my head if i'm selling 10 shares to raise a thousand bucks i basically paid 500 for that thousand because the stock is really worth five fifty dollars a share that's the way i'm looking at it if i'm the ceo or cfo i'm not looking at it as i i got a thousand bucks i look at it as i got a thousand bucks for 500 paul why am i messing around with all this mumbo jumbo if all i really want is to buy a company at x dollars and then hope it goes up x dollars and then sell it so i can make money you absolutely can do that but over the long haul stocks are a weighing machine in the short run there are voting machines so in the long run what matters is the income statement balance sheet cash flow statement what's behind it and part of that is the shares outstanding the more and more they buy their shares back the bigger and bigger the peace the pie that your share gets your share is worth more money it's a very important factor the more shares they issue out there the less your shares are worth because they're getting less and less of the company and so final question how do you take all this into perspective when you're looking at a company and that we look at on the show and we use our eight pillars to look at the fundamentals of a company how much weight do you throw into this step this one's more of a let's say the psychology of the company like am i seeing overpriced companies buying shares back i'd be like why are they doing that if i see an underpriced company that's issuing shares why are they doing that it's more to understand what what is the corporate team thinking about the executive team how do they think about the company and the money do they think about it as their owners with me or they think about it as i need to go drive things up and do things and it's more about the mentality of what the company is doing this is a long process if this sounds new to you you can join our patreon the link is in the description below you can join if you again i say this in a lot of videos i felt very alone in my event investing journey it was like me talking to my wife and doing research on youtube and reading news articles but you can join a community our patreon uh you can you can get in and talk to people literally all over the world to further your mindset about having this discipline looking at these these fundamentals of companies if this speaks to you we'd be glad we'd be glad to have you on our team and working with us so paul that's our take on shares outstanding we appreciate you guys watching and i will certainly update this talk more about this in the future incredible one of our eight pillars and a very important step looking at a company so tickle a thumbs up on the way out thanks for watching

Channel: Everything Money

Views: 18,860

Keywords: everything money, investing, investing101, investing in your 20s, financial education, fundamental stock analysis, investing 101, stock fundamental analysis, stocks, stock market, stock, value investing, stock fundamentals, shares, shares outstanding, shares outstanding explained, diluted shares outstanding, dilution, stock market explained, stock market basics, your piece of the pie, shares shares

Id: 8EPM7URfLvk

Length: 11min 17sec (677 seconds)

Published: Wed May 19 2021

Reddit Comments

[u/LeihTexia]

In a world of awful, just godawful, youtubers posting "why TSLA will hit $3000" and other fantasy, there is a channel that focuses on old school value investing, anyway, newbies beware - shares outstanding is very important, dilution is very important.