Jamin Ball on Stock Based Compensation

Nice article on SBC.

He essentially agrees with the framework that Keith Weiss from Morgan Stanley recently laid out:

“Bottom-line from our analysis, for every additional percentage point of share dilution seen from SBC versus the industry average – 2.5% per year for 15-30% growers and 4% per year for 30%+ growers, we estimate EV/Sales multiples should be adjusted down by ~6%.”

IMHO, it seems to makes sense to adjust the EV/Sales multiple (or at least note it as a data point) if a company is over-diluting it’s shares compared to it’s peers, while taking the top line growth rate into account.

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