Please ensure Javascript is enabled for purposes of website accessibility

Why Torchlight Energy Resources Stock Tanked 19% in Early Trading Today

By Reuben Gregg Brewer - Jun 17, 2021 at 1:09PM

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

There's a lot going on at this exploration and production company, but an important change is quickly approaching.

What happened

Shares of energy driller Torchlight Energy Resources (TRCH) fell as much as 19% in morning trading on June 17. By around noon EDT the stock had clawed back some of those losses and was sitting with a drop of about 16%. Some of the drop could be a giveback from June 16, when the stock was in rally mode. However, there's so much going on with Torchlight Energy Resources lately that the shares have been on something of a roller coaster ride for a long time.

So what

In late 2020 Torchlight Energy Resources agreed to merge with Canada's Metamaterial. This, however, isn't a simple business combination, it is a way for Metamaterial to get a U.S. listing. In fact, following the merger, the company plans to exit the exploration and production business altogether. There are a lot of moving parts in this very complex deal. Progress has been slower than expected as well, leading to numerous news-driven price spikes and declines over the first half of 2021. But it looks like it will be consummated relatively soon.  

Two people in the front seat of a roller coaster.

Image source: Getty Images.

On top of that, it appears that the Reddit message boards have taken a shine to Torchlight. That was a big part of the story in yesterday's large price advance. So there's a very real possibility that today's drop is related to nothing more than the mercurial mood of Reddit investors. However, there has also been material merger news over the last few days, including a preferred share dividend (which will effectively track the energy business after the merger is complete) and, yesterday, the announcement of a $100 million share sale. Both are important steps along the way to finalizing the merger and suggest that it will soon be a done deal. The stock sale, however, will dilute shareholders, which is generally not a good thing and could also be the cause of the sell-off today. There are so many moving parts right now, it's hard to tell what fact or facts are spurring investors.  

Now what

Most investors will probably be better off watching this show from the sidelines. The merger between Torchlight and Metamaterial is complex and will fundamentally change Torchlight. While the deal appears to be nearing completion, the legacy Torchlight assets still have to be exited in some way, so the complexity here won't end when the deal is closed. 

Reuben Gregg Brewer has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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

Torchlight Energy Resources, Inc. Stock Quote
Torchlight Energy Resources, Inc.
TRCH

*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 analyst team.

Stock Advisor Returns
400%
 
S&P 500 Returns
128%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 08/15/2022.

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.