Shares of Newsmax Media (NMAX +1.18%) are plunging on Friday. The media company's stock lost 18% as of 3:45 p.m. ET and was down as much as 23.6% earlier in the day. The steep decline comes as the S&P 500 (SNPINDEX: ^GSPC) and Nasdaq Composite (NASDAQINDEX: ^IXIC) lost 0.2% and 0.6%, respectively.
Newsmax announced today that the Securities and Exchange Commission (SEC) has approved its filing that will allow certain investors to sell their stock, leading to significant dilution.
NYSE: NMAX
Key Data Points
More shares on the market
Newsmax announced that the "SEC has declared effective the Newsmax resale registration statement on Form S-1." This means that the shares held by investors who had taken part in a previous private placement and until now were prohibited from trading their shares on the public market may now do so.
Image source: Getty Images.
Roughly 121 million shares could now enter the market. That is a massive influx of shares and represents a significant dilution risk. The SEC filing from the company acknowledges this, saying, "The Selling Stockholders may sell a substantial number of shares of our Class B Common Stock pursuant to this offering, which could cause the price of our Class B Common Stock to decline."
A challenging time
The company is operating deep in the red, losing $72 million on $171 million in sales. Despite the lackluster numbers and an equally poor balance sheet, the company's market capitalization is nearly $3 billion.
Newsmax was not a good investment before the release of these shares, and it is even less so now. I would stay far away from this stock.
