What happened
One week ago, Navitas Semiconductor (NVTS +2.94%) shares shot to the moon on reports of a big earnings beat in the company's first-quarter 2023 report. Navitas shares soared as much as 20% on earnings day -- then kept going higher over the next several days, ultimately racking up a stellar 43% gain.
Today, Navitas is cashing in those gains -- and investors are swallowing a 23% loss as Navitas shares tumble.
NASDAQ: NVTS
Key Data Points
So what
Navitas investors had a lot to be excited about last week, with Q1 2023 revenue literally doubling year over year, order backlog up 50%, and management targeting another double in revenue in the second quarter.
Not all the news was great. Gross profit margin declined in the quarter and the semiconductors company reported a big $0.39-per-share loss according to generally accepted accounting principles (GAAP). Management also very obviously declined to promise that its sales growth in Q2 would be accompanied by profits. Nevertheless, growth investors cheered the company's results, and Navitas shares went off to the races.
Yesterday, however, Navitas announced that it will sell $80 million worth of new shares to cash in on the run-up in its share price. This morning, management further clarified that it will be selling these shares for a bargain price of $8 apiece -- 16% below where the shares traded last night.
This in a nutshell is why Navitas' stock price is falling today -- because management itself set a new, lower price on its own shares.
Now what
So where does this leave investors today? On the plus side, Navitas is about to get $80 million in new money to work with -- enough cash to keep the doors open and the lights on at this cash-burning chips company for nearly two full years, at its current burn rate of $49 million a year.
On the minus side, $80 million worth of shares sold at $8 apiece obviously means 10 million new Navitas shares will be created. According to data from S&P Global Market Intelligence, this will increase the company's share count by 6.2%, and this means that any future profits the company might earn would be diluted by 6.2% as they're divvied up among more shares outstanding.
Meanwhile, analysts don't see Navitas turning profitable before 2027 at the earliest, so how Navitas divides up its entirely hypothetical future profits might be a moot point.
