Advanced Battery Shares Plunged: What You Need to Know

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of battery manufacturer Advanced Battery Technologies (Nasdaq: ABAT  ) were off nearly 14% in intraday trading as investors reacted to a share sale by the company.

So what: The rechargeable battery industry has been spurred on by the hope that electric vehicles will continue to gain traction around the world. Rapid expansion, however, isn't free, and Advanced Battery shareholders are seeing the price today as the company raised new capital to put toward expanding its manufacturing facility and making acquisitions. The $30 million worth of new shares were sold at $4.00 -- a 7% discount to the previous closing price -- and included warrants to buy additional stock at $4.00.

Now what: A drop is pretty typical when a company sells new shares at a discount, but the real question is whether the company will be able to put the new money to good use. If it's able to invest the new funds in projects and acquisitions that have significant payoffs of the long run, the share sale -- discount or not -- could be a long-term positive. Of course, that's not a given. An Associated Press article today expressed concerns over the near-term speed bumps that Advanced Battery -- along with fellow battery makers A123 Systems (Nasdaq: AONE  ) and China BAK Battery (Nasdaq: CBAK  ) -- may be facing as the industry deals with question marks over the market for electric vehicles.

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Fool contributor Matt Koppenheffer does not own shares of any of the companies mentioned. You can check out what Matt is keeping an eye on by visiting his CAPS portfolio, or you can follow Matt on Twitter @KoppTheFool or on his RSS feed. The Fool's disclosure policy assures you no Wookiees were harmed in the making of this article.


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  • Report this Comment On December 01, 2010, at 8:00 PM, DrRonPaul4Prez wrote:

    Rounding, there were approximately 69 million outstanding shares of ABAT before this dilution. Add approximately 11 million shares, and you bring the number up to 80 million. Consider the following calculation: 1/69 = .0145 1/80 = .0125

    .0125/.0145 = .862. So according to this calculation, each individual share of ABAT after the dilution carries about 86.2% of the value it previously carried, which appears to justify the interday trading price dropping 14% as quoted in the article.

    If we can see the stock price tumble lower without any additional news, we could speculate that the market has over-reacted, and call it a buying opportunity. No position at the time of this writing.

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