Please ensure Javascript is enabled for purposes of website accessibility

Why Fisker Stock Crashed Today

By Rich Smith – Aug 12, 2021 at 12:10PM

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

Fisker is raising cash (and debt).

What happened

Shares of start-up electric car company Fisker (FSR 4.24%) were suffering from an 8.6% sell-off at 11:15 a.m. EDT on Thursday. That comes two days after it jumped as much as 30% after receiving a bullish endorsement from Morgan Stanley.

Big red arrow going down over a stock chart

Image source: Getty Images.

So what

Capitalizing on the strong share-price surge that followed Morgan Stanley's announcement, Fisker made an announcement of its own after the close of trading last night: It is selling $600 million worth of convertible senior notes due in 2026 in a private offering, and perhaps as much as $690 million worth of these notes if buyers exercise an overallotment option.

Now what

For investors, this means either (or eventually, both) of two things. On the one hand, these notes are debt, and Fisker will have to pay interest. This isn't an entirely bad thing. Convertible notes often carry low interest rates, and let's not forget that Fisker will get nearly $700 million in funding out of this sale with which to grow its business.

The other thing to keep in mind is that convertible notes can potentially be converted into stock, and if that happens, then investors could be looking at as many as 41.4 million new Fisker shares flooding the market, potentially diluting existing shareholders by more than 20%.

In that case, Fisker would get to keep all the cash from this offering, and not pay it back. But shareholders would still be looking at some significant dilution of their claims on future profits. And that's a pretty good reason for Fisker stock to be down today.

Rich Smith 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.

Stocks Mentioned

Fisker Stock Quote
Fisker
FSR
$7.63 (4.24%) $0.31

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

Related Articles

Premium Investing Services

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