Does your job give you access to "confidential information", such that you can only buy or sell shares in the company during certain windows? Employees with access to company financial data, resource planning databases, or customer databases are often only allowed to trade in company securities (or derivatives thereof) during certain "windows" a few days after the company releases its quarterly earnings reports. Even those windows can be cancelled if a major event is about to be announced. These windows are designed to prevent the appearance of insider trading, which is a serious crime in the United States.
Is there a minimum time that you would need to hold the stock, before you are allowed to sell it? Do you have confidence that the stock would retain most of its value, long enough that your profits are long-term capital gains instead of short-term capital gains?
What happens to your stock if you lose your job, retire, or go to another company?
Does your company's stock price seem to be inflated by any of these factors:
- Reliance on "fad" products.
- Boom-time profits that might end in the next couple of years.
- The company has been "buying growth" -- Its revenues are going up, because it buys other companies.
- Funky accounting (sometimes called "earnings management").
- Borrowing short-term, and lending long-term.
- Borrowing in a different currency than where the company's investments and/or sales are.
- Temporary cost-cuts, especially ones that might hurt the company's reputation or ability to get business.
- Aggressive year-end sales practices that pull future sales into the current year.
- High Price/Earnings ratio, because the company is a "hot story" on Wall Street.
If any of these nine warning flags are the case, I would think carefully before investing.
If I had a basic emergency fund set aside and none of the nine warning flags are present, or if I had a solid emergency fund and the company seemed likely to continue to justify its stock price for several years, I would seriously consider taking full advantage of the stock purchase plan. I would not invest more money than I could afford to lose.
At first, I would cash out my profits quickly (either as quickly as allowed, or as quickly as lets me minimize my capital gains taxes). I would reinvest in more shares, until I could afford to buy as many shares as the company would allow me to buy at the discount.
In the long-run, I would avoid having more than one-third of my net worth in any single investment. (E.g., company stock, home equity, bonds in general, et cetera.)