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Here's Why Aterian Stock Is Crashing

By Keith Noonan – Sep 23, 2021 at 12:17PM

Key Points

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The meme stock giveth, and the meme stock taketh away.

What happened

A day after making big gains on renewed short-squeeze momentum, shares of Aterian (ATER 1.87%) stock are now plummeting in Thursday's trading. The company's share price was down roughly 18% in the daily session as of 12 p.m. EDT. 

The big sell-off appears to be driven by news that the company has reached an agreement with lender High Trail to pay down $66.3 million in debt plus interest on that principal amount. Why would that trigger a sell-off? It's because Aterian is once again turning to sale of new shares as a way to strengthen the balance sheet. 

Money being washed down the drain.

Image source: Getty Images.

So what

Take a look at the chart below, which tracks Aterian's outstanding share count over the last year and does not include the new shares that will be issued to pay down outstanding debts to High Trail. 

ATER Shares Outstanding Chart

ATER Shares Outstanding data by YCharts

The company is currently operating at a loss, and it's frequently turned to the sale of new shares to raise capital. With even more new shares being created, that could put a significant dent in the short squeeze thesis on the stock.

Even with the sale of the new shares, Aterian will still be on the hook for $25 million in debt to High Trail, which will now come due in April 2023 after the recent restructuring. Aterian management sees the completed deal as opening the doors to pursuing its mergers and acquisitions strategy. The company's core business revolves around identifying in-demand product categories on Amazon's e-commerce marketplace and then purchasing or partnering with companies that produce those goods. 

Now what

Even with the sale of the new shares, Aterian will still be on the hook for $25 million in debt to High Trail, which will now come due in April 2023 after the recently agreed upon restructuring. The creation of new shares will presumably lower the total percentage of shares outstanding sold short, at least in the near term. That doesn't completely sink the potential for another short-squeeze powered rally, but both long-term investors and those looking to play the squeeze angle have reasons to be concerned about dilution. 

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Keith Noonan has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Amazon. The Motley Fool recommends Aterian, Inc. and recommends the following options: long January 2022 $1,920 calls on Amazon and short January 2022 $1,940 calls on Amazon. The Motley Fool has a disclosure policy.

Stocks Mentioned

Aterian, Inc. Stock Quote
Aterian, Inc.
$1.09 (1.87%) $0.02 Stock Quote
$88.42 (0.19%) $0.17

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

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