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Why Silk Road Medical Stock Is Sinking Today

By Keith Speights – May 6, 2020 at 12:52PM

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Investors responded negatively to the medical device company's pricing of a public stock offering.

What happened

Shares of Silk Road Medical (SILK) were sinking 11.4% lower as of 12:18 p.m. EDT on Wednesday. The decline came after the medical device company announced the pricing of a public stock offering. Silk Road plans to sell over 6.8 million new shares at $39 per share. 

So what

There's both good news and bad news anytime a company conducts a stock offering. Investors usually focus more on the bad news at first, and that's why Silk Road Medical shares are falling today.

A man in a suit standing on the red line of a declining chart, looking toward the low point

Image source: Getty Images.

The bad news related to the company's stock offering is that dilution is on the way. Silk Road's issuance of new shares will make its existing shares worth less because of the impact of dilution. Also, the company priced the stock offering 9.9% lower than the stock's Tuesday closing price. 

What's the good news for Silk Road? The stock offering will generate around $75 million in gross proceeds. After paying fees and commissions, the company will have a lot more cash at its disposal. Silk Road said it plans to use some of the proceeds to expand its sales force as well as expand internationally. It also intends to invest more in research and development as well as conduct or sponsor clinical studies. The company noted that it could use some of the additional cash to pay down debt or make acquisitions. 

Now what

The main thing to watch with Silk Road Medical in the coming months is how the COVID-19 pandemic affects the company's business. Like many companies in the healthcare sector, Silk Road withdrew its full-year 2020 guidance because of uncertainties created by the viral outbreak.

Keith Speights has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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