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Why Shoals Technologies Stock Dived by 14% on Tuesday

What happened

High on the list of Top Investor Annoyances is share dilution, which is why stocks of companies that announce new share issues often get punished by the market. Such was the case on Tuesday with solar-energy systems specialist Shoals Technologies Group (NASDAQ: SHLS). Shares closed the day down by slightly more than 14%.

So what

On Monday, after market close (which is often when such things are announced), Shoals said that nearly 13.4 million shares of its Class A common stock are to be sold in a public offering. Of that total, just under 8.4 million shares are to be offered by the company itself, with the remainder being divested by investor Oaktree Capital Management and Shoals' general counsel Mehgan Peetz.

Image source: Getty Images.

The company is also granting the issue's underwriters a 30-day option to buy up to slightly more than 2 million additional shares.

It said it would use the proceeds of the shares it is selling to "purchase equity interests in its operating subsidiary from certain holders," including those of its founder and several top managers.

With the underwriter options, Shoals is potentially floating over 10.4 million shares. According to data from Yahoo! Finance, at present the company's outstanding share count is just under 93.6 million.

Now what

While there are certainly scarier and more dilutive stock issues out there, investors might be concerned that this one is being used for greater equity control rather than growing the business. Also, Shoals is going to the well quite early in its life as a publicly traded entity -- the company had its IPO in February.

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Eric Volkman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.


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