Stock-based compensation is a real cost even though many investors treat it as a non-cash footnote. Mechanism: SBC dilutes existing shareholders. Excluding it from adjusted earnings makes profitability look better than the economic reality. Why it matters: Over time, heavy SBC can transfer significant ownership value away from shareholders even while the headline business grows. Market translation: A tech company reporting "adjusted" EPS well above GAAP EPS may be hiding 5-10% annual dilution that quietly eats into per-share value. Failure mode: The mistake is accepting adjusted earnings as the real story without adding back the dilution cost to your ownership math. Review question: Write down the state variable you would monitor first if this thesis started to drift. That is usually where the edge is: not in the vocabulary, but in the structure underneath it.