Shares of Napco Security Technologies (NASDAQ:NSSC) -- a maker of security products such as door locks, keypad entries, burglar alarms, and video surveillance systems -- crashed 14.4% through 11:25 a.m. EST today after the company announced a big stock offering last night then set its price this morning.
Napco CEO Richard Soloway intends to sell 2.2 million shares of common stock that he currently owns for $26 apiece -- and may sell an additional 335,000 shares if underwriters exercise an overallotment option.
In total, therefore, the CEO could end up selling just under 2.6 million shares, which according to data from S&P Global Market Intelligence, works out to about 42% of his own personal holdings of Napco stock and 14.2% of all shares currently outstanding.
Because this is a sale of existing stock, there will be no stock dilution for existing shareholders. On the other hand, because it is the CEO selling, and not Napco issuing and selling new stock, the company itself will receive no additional funds from this secondary stock offering.
Given the size of the stock offering, investors are interpreting this as a big vote of no confidence in the company that Soloway runs. When you consider that Napco stock is basically flat against the beginning of this year, it's understandable why they'd be disappointed by this news. On the other hand, the stock has roughly doubled off its lows of April earlier this year, so it's also understandable why the CEO might want to cash out right about now.
Considering that Napco stock is selling for a sky-high 75 times trailing earnings, maybe other shareholders should consider following suit.