LYC Mispricing Article, page-17

Well, you feel free to ignore the dilution that will certainly come from the bonds converting (because that's exactly what you're doing by using undiluted market cap). I, along the most in the investment industry, will continue to account for it using diluted market cap. I would argue that using undiluted market cap is completely meaningless. This is especially true with performance rights, which in some cases can be a huge portion of issued capital. Just look at ISX, then tell me that undiluted market is the more important figure.

I'm well aware that Google Finance, Hot Copper, etc. all use undiluted, that's mainly because it's easy. If you use programs like Iress, Bloomberg terminals, or FactSet though, you'll find both quoted. If you ask any fund manager, broker, or investment banker what the market cap of a company is, they're likely to tell you the fully diluted figure.

It's not that undiluted is wrong, per say, it's just not the whole story.