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What: Shares of Chinese communications company Telestone Technologies
So what: The drop today is a no-brainer. Telestone sold 1.67 million new shares, diluting current shareholders by roughly 16%. Worse still, the shares were sold at $12 each despite the fact that yesterday's closing price was north of $14.
Now what: One might wonder why a solidly profitable company like Telestone would need to sell new shares at all, let alone do it at a significant discount to the market price. Well, even though the company has reported nearly $18 million in net profit over the past 12 months, the company has had trouble turning any of its profits into cash. Over the five years ended in 2009, growth in accounts receivable sucked up all of the company's profits, and it managed to burn through $3.3 million in cash in its operations. With ongoing concerns about small Chinese companies that entered the U.S. markets through reverse mergers, Telestone is one that I'd skip over.
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Fool contributor Matt Koppenheffer does not own shares of any of the companies mentioned. You can check out what Matt is keeping an eye on by visiting his Motley Fool CAPS portfolio, or you can follow Matt on Twitter @KoppTheFool or on his RSS feed. The Fool's disclosure policyassures you no Wookiees were harmed in the making of this article.