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Why Stratasys Stock Just Dropped

By Rich Smith - Mar 3, 2021 at 11:47AM

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What went up just came back down.

What happened

Stratasys (SSYS -0.27%) stock went to the stratosphere Monday, shooting up more than 10% at one point on a powerful earnings beat -- but today, investors seem to be having second thoughts. Shares are already down 11.5% from yesterday's close as of 11:15 a.m. EST, and have given up all their Monday gains and more.

And I fear Stratasys itself is to blame for that.

Glowing red stock chart arrow trending down

Image source: Getty Images.

So what

Just days ago, Stratasys predicted that it's entering a "sustained trajectory of unprecedented growth" and boasted of its strong balance sheet, and how it was able to support the company's growth. No sooner had it pumped up the enthusiasm for its stock, however, than Stratasys management tried to capitalize on that enthusiasm.

Last night, Stratasys announced plans to create and sell millions of new shares in an attempt to raise an additional $200 million for its cash reserves. This morning, the company set a price on its share offering: at least 6.9 million shares to be sold for $29 apiece, and potentially as many as 7.9 million shares if underwriters exercise their overallotment options.  

Now what

On the one hand, this overallotment raises the possibility for Stratasys to add as much as $229 million (before fees) to its coffers. On the other hand, such a large share offering holds the potential to balloon Stratasys' share count by 14% -- diluting existing shareholders out of 14% of their ownership stake in the company. (Albeit, the company as a whole would be more valuable, because it would have more cash in the bank -- giving shareholders smaller pieces of a bigger pie, so to speak.)

Investors today seem to be focusing on the downside risk to their ownership stakes, rather than the upside potential of giving Stratasys management more money to work with. This, in a nutshell, is the reason the stock is going down.

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