Investors love IPOs. Secondaries? Not so much.
SodaStream will only issue 1.2 million freshly minted shares -- a dilution of just 6%, based on its recent count of 20.3 million shares outstanding. It certainly doesn't seem fair for a stock to shed more than the value of its new shares, especially when SodaStream's coffers will be roughly $50 million heavier after the sale.
But the other part of the deal is spooking investors. In all, SodaStream's secondary offering encompasses 5 million shares, with 3.8 million being sold by existing shareholders. Instead of insiders selling in drips and drabs as SodaStream approaches the end of its lock-up period, investors are facing a deluge.
Secondary offerings aren't evil. They raise money, grease underwriter relationships, and provide an orderly exit strategy for large shareholders. SodaStream's stock has more than doubled since going public at $20 five months ago, so it's more lucrative for pre-IPO investors and less pungent in terms of dilution.
SodaStream also showed momentum by barreling to new highs last week. It sold 712,000 of its namesake beverage carbonation systems in its latest quarter, and it's blown past Wall Street's profit targets in its first two quarters as a public company. Initial comparisons to Green Mountain Coffee Roasters
SodaStream not the only company raining on Mr. Market's parade with an unwelcome secondary offering. High-end grocer The Fresh Market
SodaStream's fundamentals will ultimately determine whether it can bounce back. If it comes through with a third consecutive blowout quarter, investors will no longer fear that those cashing out saw something that retail investors failed to catch.
SodaStream is no Keurig, but investors can still take heart. Green Mountain shares took a hit two summers ago, after the java heavy pushed through a secondary offering. The darling stock has gone on to more than triple.
No one likes secondary offerings, but are they sell signals? Share your thoughts in the comment box below.
Green Mountain, NXP Semiconductors, SodaStream, and The Fresh Market are Motley Fool Rule Breakers picks. Motley Fool Alpha LLC has opened a short position on Green Mountain. Motley Fool Options has recommended a lurking gator position on Green Mountain. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.
Longtime Fool contributor Rick Munarriz is a fan of diet soft drinks. He does not own shares in any of the stocks in this story. Rick is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has a disclosure policy.