Shares of Dothan, Alabama-based civil construction company Construction Partners (ROAD -0.04%) plunged in Friday morning trading, falling 8.8% through 10:40 a.m. EDT. Its own shareholders are to blame.
Last night, Construction Partners announced that "certain affiliates of SunTx Capital Management Corp." (the selling shareholders in question) plan to sell at least 2 million shares -- and perhaps as many as 2.3 million shares -- of Construction Partners stock for $31.25 each.
Because this is a sale by a shareholder of Construction Partners and not by the company itself, Construction Partners will receive no cash from the stock sale. That's the bad news. The good news is that, because Construction Partners isn't creating and selling any new shares, outside investors will suffer no stock dilution from this secondary stock offering.
Those outside shareholders seem to be focusing on the bad news today that someone owning 6.8% of Construction Partners stock has decided to sell and the sale is driving down the price of everyone else's shares. And yet, looked at another way, while SunTx is cashing out today, it's also cashing in on the incredible 120% rise in stock price that Construction Partners has enjoyed over the past year.
With the stock now trading for 40 times earnings but pegged for only a 17% earnings growth rate over the next five years, SunTx may actually be making the right call here. Maybe it's time to take some profits, "declare victory, and go home."