Convertibles let a company borrow at a low coupon by selling equity upside. The conversion ratio fixes how many shares each bond becomes. Hedge funds that buy them typically short the stock against the bond, so a convertible issue is often followed by immediate selling pressure that is hedging, not a verdict on the business.
Watch the conversion price against the market price and the call date. Above the conversion price the bond trades like stock and the shares sit in fully-diluted-shares.
Example: $500M of bonds convert at $25 per share, or 20M shares. With the stock at $40 the bonds are worth about $800M as equity, and conversion would add 20M shares to a 180M base, an 11% dilution.
Related: fully-diluted-shares, warrant, short-selling