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Why BrightView Holdings Stock Tumbled 19% Today

By Rich Smith – Jun 11, 2020 at 7:28PM

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Insiders are cashing out. Today, outsiders cashed out, too.

What happened

BrightView Holdings (BV 0.51%) stock tumbled 18.8% in Thursday trading, closing the day below $12 a share for the first time in nearly a month. And yet, BrightView Holdings is a commercial landscape-services company -- landscaping -- as in one of the few businesses that you might think could continue to operate safely in the middle of summer, even if the coronavirus comes roaring back onto the scene (as many investors seemed to think when they began selling stocks today).

So why did BrightView stock go down, as well?

Cartoon characters confused by stock chart arrow falling and crashing into floor

Image source: Getty Images.

So what

While BrightView stock may have gotten caught up in a wave of selling that seemed to swamp all stocks today and pulled the entire S&P 500 down nearly 6%, BrightView also had its own particular problems to contend with. Specifically, today BrightView announced that the "underwritten secondary offering" of 10 million new shares that it announced yesterday would be priced at just $13.40 per share -- a good $1.70 below where BrightView stock was trading at the end of yesterday. 

That hint that BrightView stock might not be worth quite as much as it was selling for at the time most likely provided the catalyst that initially prompted investors to sell the stock. And on a day like today, once that selling had begun, it just kept building momentum and increasing in size. By the time trading ended for the day, BrightView stock was below $12 ... and below the price it had set for its secondary offering.

Now what

Will the stock recover? Maybe, but I personally wouldn't bet on it.

First and foremost, consider that even after its sell-off, BrightView stock still trades for a whopping 52 times trailing earnings. (And that's not even considering the effect of the company's more than $1.2 billion in net debt. Factor that into the picture, and the stock's "debt-adjusted" price-to earnings ratio is more than 100 times).

On top of that, as BrightView admitted in its press release describing the secondary offering price, "certain stockholders" are the ones selling all 10 million of the shares on offer, and these shareholders "will receive all of the proceeds from this offering." Translation: BrightView is getting no cash from this stock sale, so it won't be able to even begin whittling away its debt load.

All the money is going to insiders cashing out ... on a stock that costs more than 52 times earnings. Is that the kind of stock that you would want to buy into?

Today, a lot of investors answered that question with a resounding "no."

Rich Smith has no position in any of the stocks mentioned. The Motley Fool recommends BrightView Holdings, Inc. The Motley Fool has a disclosure policy.

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