Why Capstone Turbine Corporation's Shares Plunged Today

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 micro-turbine maker Capstone Turbine Corporation (NASDAQ: CPST  ) plunged 14% today after announcing a dilutive stock offering.

So what: Capstone is selling 18.825 million shares of stock to the public for $1.70 per share, which will result in proceeds of about $30.2 million after underwriting costs. This was stated as a public sale but all of the shares are being sold to a single institutional investor and there's no overallotment provision that often accompanies share sales.  

Now what: Management said it will use the monty for "general working capital requirements and for other general corporate purposes," which really means that it needed more cash to fund operations. The big concern for investors is that operations never seem to turn the corner to profitability, which requires continued dilution in stock sales like this. You can see in the chart below that this is a habitual problem for Capstone.

CPST Average Diluted Shares Outstanding (Quarterly) Chart

CPST Average Diluted Shares Outstanding (Quarterly) data. Source: YCharts.

I understand that some investors are holding on to hope that the micro-turbine market will someday be a big winner, but Capstone hasn't ever proven that investors will see good returns from that potential. I'm certainly not buying the dip today and would make management prove it can make a sustained profit before even considering buying this stock.

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  • Report this Comment On May 01, 2014, at 2:28 PM, abshelby wrote:

    I am disappointed in Capstone management. I have held CPST shares for a number of years and have been patiently hopeful for real progress. However, CPST management certainly doesn't show much confidence in themselves when they 18.8 million shares at about 15% below the market price to raise money. In addition they didn't even give current stockholders an opportunity to buy some of these shares at the reduced price. Perhaps someone could explain to me why this mode of financing was necessary. I am still very hopeful for a CPST breakout, but this type of management practice is not encouraging to me.

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