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Why Desktop Metal Stock Tanked Today

By Rich Smith - Dec 24, 2020 at 12:11PM

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This has been one of the year's less-impressive SPAC IPOs.

What happened

The stock of metallic 3-D printing company Desktop Metal ( DM 0.31% ) has been one of the year's less impressive special purpose acquisition company (SPAC) IPOs. And it's continuing to not impress on Christmas Eve.

Since closing its IPO Day below $19 a share, Desktop Metal has traded even lower than the IPO Day price. The share price finally began climbing earlier this week, but today, the stock is tanking once again, and was down 9.3% as of 11:30 a.m. EST.    

Simple red arrow declining stock chart on a white checked background

Image source: Getty Images.

So what

Desktop Metal has only itself to blame for this renewed decline. Yesterday, it filed a Form S-1 prospectus with the Securities and Exchange Commission for the sale of 3 million shares of stock, and the issuance of warrants to buy an additional 25 million shares.

In total, Desktop Metal appears to be planning to unleash a tidal wave of 28 million shares on the market, at a proposed maximum offering price of just $16.40 per share.  

Now what

The good news about this offering is that the new shares may not appear all at once, as the company says its plan is to sell the shares only "from time to time." But the bad news outweighs the good.

The 3 million shares up for sale will come from Desktop Metal insiders who will be cashing out. This won't dilute existing shareholders, but neither will it bring in new cash to fund the company's expansion.

In contrast, the 25 million warrants will dilute shareholders by about 9.9%. They will bring in cash, but Desktop Metal notes that the closing sale price of the warrants on Dec. 22 was only $5.41, and they're exercisable at a share price of $11.50 (that's $16.91 total, versus the $21.30 that the stock closed at yesterday).

So the warrants may bring in a lot less cash than current shareholders would like, and investors are understandably upset about that today.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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Stocks Mentioned

Desktop Metal, Inc. Stock Quote
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