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Autobytel Inc. Message Board

  • rwagner467 rwagner467 Feb 24, 2014 12:00 PM Flag

    Companies with overvalued stock prices are more likely to issue new shares as opposed to paying cash or other funding

    A company is more likely to issue new shares when its stock is overvalued so that it can receive more money for each share sold. Positive investor sentiment for overvalued stocks may allow a company to set the issuing price even higher than its stock's current market price. When new shareholders have paid more than the stock's original value as assessed by the stock's existing shareholders, the difference in value may be redistributed between new shareholders and existing shareholders, decreasing the holding value for new shareholders and increasing the holding value for existing shareholders. As a result, there is a value concentration, or increase, in the company's stock.

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