No share price makes stock a good currency by itself. As a first screen, issuing stock adds to your earnings per share when your price-to-earnings multiple is higher than the multiple you pay for the target, and subtracts when it is lower. In the worked example, buying at 8 times earnings, a 12x stock adds 5.9 percent to earnings per share, while a 6x stock cuts it 5.3 percent. As of October 2026, a Nasdaq-listed company also generally needs shareholder approval to issue 20 percent or more of its shares for an acquisition.
No. A $0.50 share and a $50 share can be equally good or equally poor currency. What matters is the price relative to earnings and to value, not the number of dollars on one share. Exchange listing rules set minimum bid prices for staying listed, but that is a listing question, not a currency question. See Nasdaq listing requirements in 2026.
Compare your price-to-earnings multiple with the multiple you pay for the target. Paying entirely in stock raises your earnings per share when your multiple is higher than the target's. It lowers them when yours is lower. When they are equal, nothing changes.
This is a test of earnings per share only. Berkshire's Berkshire Hathaway 1994 shareholder letter warns against judging mergers by near-term earnings per share and says what counts is value per share. Treat the P/E test as a first screen.
Assumptions. The acquirer has 10,000,000 shares and earns $5,000,000, so earnings per share are $0.50. The target earns $1,000,000 and is bought for $8,000,000, which is 8 times earnings. All shares are issued at the acquirer's market price, with no synergies, fees or taxes beyond those stated. Combined earnings are $6,000,000.
Break-even is at 8 times, the multiple paid. Above it, stock adds to earnings per share. Below it, stock takes away.
Add an alternative. The same $8,000,000 is borrowed at 8 percent. Interest is $640,000. At an assumed 25 percent tax rate, the after-tax cost is 640,000 x 0.75 = $480,000.
The lesson is that stock is cheap against debt only at a high multiple. Debt adds a fixed payment that stock does not, so a low-earnings or unstable company may still prefer stock.
Where these numbers come from: The caution on earnings per share is from the Berkshire Hathaway 1994 shareholder letter. The approval test is from Nasdaq Rule 5635(a). Every share count, multiple, price, interest rate and the 25 percent tax rate in the examples are assumptions. The arithmetic is mine. Confirm with your accountant.
There is no safe number. Use the multiple you are paying as the floor, a higher multiple against your debt cost as a second test, and your own value estimate as the third.
The dollar price is not the issue. A very low price can bring listing or trading problems, and a thin market can make sellers wary.
No. Use revenue or cash flow multiples, or value, and be cautious. Without earnings, the price is harder to defend.
To see how disclosed serial acquirers have handled the same choice, see why Constellation Software almost never issued shares and Teledyne issued many.
Meraki Dealmakers is a service of Meraki Partners, LLC, an advisory firm. It is not a broker-dealer, investment adviser, business broker, law firm or accounting firm. This article is general information, not legal, tax or investment advice.
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Meraki Dealmakers is a service of Meraki Partners, LLC.
Meraki Partners, LLC is an advisory firm. It is not a broker-dealer, investment adviser, business broker, law firm or accounting firm, and does not solicit investors or receive compensation based on capital raised.
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