FuelCell Energy (NASDAQ:FCEL) is having a rough morning on Wall Street so far. Shares were trading down by 15.6% as of 10:20 a.m. EDT after the company first announced a follow-on offering of 31 million shares of common stock on Tuesday, and then expanded the size of that offering and set a $2.10 sales price for the shares early Wednesday.
It's entirely possible this stock has even farther to fall.
Consider that the just-announced share price for the secondary offering is still around 3% below the price to which FuelCell has already fallen. If 43.5 million new shares of FuelCell stock are flooding onto the market at $2.10 apiece, it doesn't make much sense that anyone wanting to buy one of the 239.4 million shares that were already trading will be happy to pay the $2.16 apiece they are fetching right now.
I could be wrong about that, of course. If you look at this situation from a different angle, after all, yes, FuelCell Energy is creating and selling at least 43.5 million new shares of stock. It could even create and sell more than that, because underwriters of the stock offering will have the option to buy up to 6.5 million additional shares over the next 30 days, bringing the total potential size of this offering to more than 50 million shares.
On the one hand, 50 million new shares would dilute existing shareholders of FuelCell Energy by a total of about 17.3% of their ownership stakes. (So I, personally, am predicting the stock will end up declining by at least 17.3% -- but again, that's just me).
Another way to look at things is that a fully subscribed and over-allotted secondary offering of this magnitude could raise as much as $105 million in new capital for FuelCell (before fees) when it closes on Oct. 2. This is new money that the company will be able to use "for project development, project financing, working capital support, and general corporate purposes." It could also, potentially, wipe out a large chunk of the company's $195.6 million debt load. Arguably, this influx of cash could make FuelCell stronger -- and make the company's stock more worth owning, not less.