Shares of AquaBounty Technologies (AQB -3.61%), a start-up company specializing in farm-raised salmon, fell today after announcing it's selling stock to raise cash. In reality, the stock offering wasn't a complete surprise. But the pricing of the offering was unsettling if you're a shareholder, and it's likely why investors are selling today. As of 11:15 a.m. EST, AquaBounty stock was down 16%.
AquaBounty has been a penny stock for years. But in 2020, shares have been increasing in value as investors anticipate the first harvest of the company's AquAdvantage salmon at its farm in Indiana. I'm not exactly sure why the stock has been on fire during the last two weeks, but it has more than doubled, reaching highs of $11.40 per share on Dec. 7.
It could be related to ARK Investment Management's interest in AquaBounty. The company is now a beneficial owner of AquaBounty with 10.2% of its shares. Many investors track ARK's holdings to generate new investing ideas. So perhaps retail investors have been piling into AquaBounty stock, following the institutional-ownership trend.
Whatever the reason, AquaBounty stock has soared and the company is taking advantage of the elevated price to raise cash. It expects to gross $56.7 million by doing this. But the offering priced at just $6.50 per share. For perspective, the stock was trading close to $9 per share when it was announced. When a company is willing to sell its own stock at that steep of a discount, it suggests management believes its stock is overvalued. That's why investors are selling today as well.
Some may feel like dilution is the main issue here, but here's why I don't see it that way. On Nov. 19, AquaBounty's shareholders voted to raise the share-count authorization from 50 million to 80 million. The stock barely budged then, even though that vote put significant dilution on the table. Today's announced offering is only for up to 10 million shares, so there's a good chance the company will raise cash this way again down the road.
AquaBounty has yet to generate revenue from its flagship product, AquAdvantage salmon. These genetically modified fish grow faster than their wild cousins, and the company has big plans for their commercialization. By 2028, it hopes to produce 55,000 tons annually.
But to do that, it will have to scale production, which is how it will use its fresh pile of cash. AquaBounty is looking to purchase land and build a new facility in Kentucky that could eventually handle 10 thousand metric tons of salmon a year.
Editor's note: This article has been corrected to say that AquaBounty is looking to purchase land and build a new facility in Kentucky that could eventually handle 10 thousand metric tons of salmon a year.