Montrose Environmental Group (MEG -0.74%) shares have been flying high in 2024 and management has decided to use the strength to build its war chest.

Shares of the environmental consulting firm were down 7.4% for the week, according to data provided by S&P Global Market Intelligence, as of Thursday afternoon, and at one point were down as much as 15%, after the company announced a secondary offering.

Selling into a rally

Montrose Environmental is a provider of air measurement, emergency response, remediation, and regulatory compliance services for commercial and government customers. The company through the years has expanded its geographical presence and expertise via acquisitions, which requires a good amount of cash on hand.

This week, Montrose announced a secondary offering of up to 3.45 million shares sold at a price of $37.15 apiece. Should the underwriter option for added shares be exercised the company would raise about $128 million before fees.

Montrose said the proceeds would be used for general corporate purposes as well as the "continued acceleration of strategic growth initiatives, including, but not limited to, acquisitions or business expansion."

Investors tend to react unfavorably to secondaries because they make each share they own a little less value because of dilution. In this case, Montrose is adding 3.45 million shares to its 30.63 million total. The deals are also typically done at a discount to the market price.

Is Montrose Environmental stock a buy after its secondary?

Shares of Montrose Environmental were bouncing back nicely by the end of the week after an initial drop due to the secondary. Investors are getting this one right.

The deal will slightly dilute existing holders, but it also provides the fuel Montrose needs to continue on its growth trajectory. If management puts the cash to use on accretive acquisitions the total value of an individual share should go up over time even after the dilution is considered.

There's risk here, as Montrose is a relatively young company and consolidators need to worry about complex integrations and potential culture issues. But there is also great demand for Montrose's services in a world looking to expand and renew infrastructure but not run afoul of environmental regulations.

The offering should not scare off interested investors.