MGM just did an offering at 7. The street will tell you it is dilutive, but they used proceeds to pay down debt. Equity is subordinate to debt, so how dilutive is it really?
FAS is the bet on the financials. The sellers and pukers who sold, won't get a chance to get in. They already had their equity raises. So both rally.
That doesn't matter. You need to look at enterprise value-MGM is now a surviving entity; so earnings will be diluted, but they'll just pay more for them.
You're graded in this game by the stock price. Your point is valid, but in this point in the business cycle, you're overthinking it.
In a bearish environment, your point works. We are not in that environment anymore.
If I had a $10 stock, with a billion market cap, and a billion in debt, and hundred million in earnings, and it raised a billion in equity to pay down the debt, the PE ratio, according to math, would now be 20, and the textbooks would say the stock should go to $5.
Would that make sense? No stock investors would just pay more for the equity component.
It's the same here. The dilutive aspect is not as dilutive as the numbers indicate.
5 comments:
why mgm and fas?
MGM just did an offering at 7. The street will tell you it is dilutive, but they used proceeds to pay down debt. Equity is subordinate to debt, so how dilutive is it really?
FAS is the bet on the financials. The sellers and pukers who sold, won't get a chance to get in. They already had their equity raises. So both rally.
isn't it dilutive since earnings will go down?
That doesn't matter. You need to look at enterprise value-MGM is now a surviving entity; so earnings will be diluted, but they'll just pay more for them.
You're graded in this game by the stock price. Your point is valid, but in this point in the business cycle, you're overthinking it.
In a bearish environment, your point works. We are not in that environment anymore.
If I had a $10 stock, with a billion market cap, and a billion in debt, and hundred million in earnings, and it raised a billion in equity to pay down the debt, the PE ratio, according to math, would now be 20, and the textbooks would say the stock should go to $5.
Would that make sense? No stock investors would just pay more for the equity component.
It's the same here. The dilutive aspect is not as dilutive as the numbers indicate.
That's why it was a buy.
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