Please ensure Javascript is enabled for purposes of website accessibility

Why NextDecade Stock Tanked as Much as 15% Today

By Reuben Gregg Brewer - Mar 30, 2021 at 12:21PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The energy company inked a deal for more cash, which is good. But investors are worried about the implications.

What happened

Shares of NextDecade (NEXT -1.46%) fell a touch over 15% at one point in morning trading on March 30. The decline was likely driven by the after-the-market news release on March 29 explaining that the would-be liquified natural gas (LNG) exporter and carbon capture company was raising some additional cash.  

So what

NextDecade doesn't actually have any operations at the moment. But, as noted, it is looking to build an LNG export facility and a carbon capture project. It is in the very early stages of its development efforts. That's important because it costs a lot of money to build projects like these, and the company has no revenue coming in the door. In order to sustain its business, it has been raising capital by selling convertible preferred stock.   

A liquified natural gas LNG tanker at sea.

Image source: Getty Images.

On March 18 it announced plans to sell $24.5 million worth of convertible preferreds. And yesterday it announced it intended to sell $10 million more of the same preferreds. This is good in that it provides the energy company with the funds it needs to keep advancing the projects it is working on. However, selling convertible preferred stock brings with it the very real risk of shareholder dilution, assuming those convertible preferred shares eventually get converted. Dilution is not a good thing for current shareholders, so it makes sense that investors weren't so pleased with a second round of capital raising in less than a month's time.  

Now what

Most long-term investors will probably want to tread carefully here. While the prospects of an LNG export facility and a carbon capture project are exciting, there is a long way to go before NextDecade has these projects up and operating. That means that the red ink is going to keep flowing and, likely, a lot more capital will be needed over the near term. 

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

NextDecade Corporation Stock Quote
NextDecade Corporation
NEXT
$6.75 (-1.46%) $0.10

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
334%
 
S&P 500 Returns
117%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 05/25/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.