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Why Senseonics Holdings Stock Sank Today

By Keith Speights - Jul 18, 2019 at 3:33PM

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Dilution is on the way, causing at least temporary pain for shareholders.

What happened

Shares of Senseonics Holdings ( SENS -1.59% ) were sinking 14.3% as of 3:12 p.m. EDT on Thursday. The big drop came after the medical technology company announced the pricing of a public offering of its stock.

So what

The math for public stock offerings is pretty simple. As more shares become available for purchase, the value of existing shares goes down -- typically by a similar percentage as the increase in outstanding shares. This shareholder dilution creates pain for investors, at least temporarily.

Line chart going down with numbers on digital board in background

Image source: Getty Images.

Senseonics is creating more than 27.2 million additional shares for its stock offering. That represents around 12.8% of the company's current outstanding shares, which is pretty close to how much the stock fell today.

The price of a stock offering is also important. Senseonics priced its latest stock offering at $1.10 per share. Unsurprisingly, its share price promptly dropped to near that level.  

There was some good news with Senseonics' announcement, though. The company will generate around $25 million in gross proceeds, most of which will go toward funding operations. Senseonics also announced the pricing of an offering of convertible senior notes due in 2025. This transaction will raise an additional $77 million in net proceeds, $37 million of which will be used to repurchase convertible senior notes that are due in 2023.

Now what

Senseonics' primary challenge is to boost sales of its Eversense implantable continuous glucose monitoring (CGM) system. The company announced earlier this week that it expects second-quarter revenue between $4.4 million and $4.7 million. That's not enough to even come close to covering expenses.

But Senseonics thinks that momentum will pick up for Eversense. CEO Tim Goodnow expressed confidence that there will be increased adoption of the CGM system in the second half of 2019. If he's right, today's dilution-caused decline could be only a temporary pullback.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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