Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.
What: Shares of Vertex Energy, Inc. (NASDAQ:VTNR) have fallen by roughly 14% today following news that the company would sell shares in a private placement.
So what: Vertex is offering 2.2 million shares to institutional investors for $7.75 apiece to raise $17.1 million. The shares will be offered at a 12% discount to Vertex's 30-day volume-weighted average share price, and will dilute existing shareholders by approximately 10%, based on 22.5 million shares currently outstanding. This sale is a 30% discount to Vertex's closing price from yesterday, and even after today's drop, those investors buying in will get a near-20% discount -- however, Vertex shares are still up by nearly 250% over the past year.
Now what: Vertex has grown quite a bit over the past few years, but its real rocket ride has taken place since the start of 2014, as roughly 185% of that 250% past-year pop has happened this year -- 150% of it has taken place in just the past three months. Investors shouldn't appreciate this dilution, but they shouldn't freak out too much either after enjoying such a ride. This is Vertex's second big move in less than a week, and there are likely to be more of them this year, particularly since Vertex's gains have been entirely valuation-driven -- its EPS has actually declined over the past two years. Tread cautiously, as any disappointing news could produce another big drop.