As explained in the two articles mentioned above, the easiest and quickest way to inform yourself about your
stock's outstanding stock options and warrants is by studying the company's latest financials. In the notes
related to the share capital you will find if there are any employee stock options and or stock warrants
outstanding. I do not only inform myself about the in-the-money options and warrants (i.e.
when the exercise prices are lower than the current share price), but I also analyse if there are any
near-the-moneyoptions and warrants outstanding (i.e. when there is a very
small difference between the exercise price and the current share price). All the in-the-money and
near-the-money options and or warrants combined, are being referred by me as the relevant stock options and
or stock warrants. Of course, I inform myself about the expiry dates as well.
A thorough analysis of your stock's outstanding stock options and or stock warrants can lead to very useful
insights. When you discover in-the-money stock options and or stock warrants owned by the company's
management, you should ask yourself why management haven't converted them to common shares yet. Don't they
believe in the company's future's prospects enough to invest their own money in the company?
When management believes it's necessary to raise additional funds, I believe it's a good sign that management
participates in the financing too, by converting their relevant stock options and or stock warrants into common
shares. Even if the stock options and or stock warrants expire several years from now.
After discovering in-the-money, or near-the-money stock options and or stock warrants you should always
calculate how much cash will be raised when these stock options and or stock warrants are converted into
When a stock's management announces a private placement to cover the deficit in the company's budget, I always
compare the amount necessary with the amount which can be raised by converting management's relevant stock
options and or stock warrants into common shares. If I conclude that the private placement is unnecessary, because
the required funds can also be raised by converting management's relevant stock options and warrants, I always
directly inform myself about the insider ownership percentage.
As I have determined that - depending on the stock's market cap - corporate insiders should
have a minimum share ownership, I have to calculate what the influence of this private placement will
be for this minimum percentage. Then, I will ask management directly why they don't choose to convert
their relevant options and or warrants into common shares, but in stead are trying to raise the required funds
by issuing additional shares. To find out how I react to management's response, I refer you to the first
note at the bottom of this page.
Another reason why I inform myself directly about the insider ownership percentage is to analyse what the
new insider ownership percentage will be, if management decides to convert all their
relevant stock options and or stock warrants into common shares, as I do not want the insiders to own more than 35%
of the common shares.
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Note: When management's explanation is
unsatisfactory, especially when management also owns a small amount of shares in the company, I will decide not to
invest in this company or, when I'm already invested in this company, I will sell my holdings immediately.
Note: When I discover relevant stock options and
or stock warrants which aren't owned by the company's management, I also inform myself about the possible effects
on the insider ownership percentage, assuming that these options and warrants are converted into common shares, as
I only want to invest in companies which comply with my minimum and maximum insider ownership
What Type of Content Can You Expect to Find on UndervaluedEquity.com
Today's News Related to the Global Energy and Mining Stocks.On
this page a RSS feed is displayed with stock market news related to the energy and mining sectors.
You can subscribe to this free RSS feed too!
How I Conduct My Stock's Due Diligence Investigation Process.If
you want to know what I learned while I was conducting my due diligence, I recommend you to read
all the chapters of the investigation process.
Are These the Best Stocks to Buy Today.In my stock watchlist you
find stocks who offer great potential, but at the time I analysed these stocks they didn't comply
with all my guidelines from my due diligence chapters.
Are These the Best Shares to Buy Now.As the year 2015 has just started, I
believe it's about time that I share my stock portfolio with you. Therefore, you will find my
updated stock portfolio on this page.
Jeroen Snoeks is the founder of UndervaluedEquity.com, a website for
investors passionate about investing in undervalued stocks. ThroughUndervaluedEquity.com, he shares his
experience and knowledge and will soon reveal his personal stock portfolio.