Many a novice investor has bet their nestegg on the forward P/E.
Tell me something. Did you load up on this stock earlier in the year when it was under $1? If you really bet the farm under $1, then you'd be thinking of taking some off the table at $3. And that's just what management did. They decided the time was ripe to sell, so they printed up a couple million shares and sold them at $2.12. Would management do this if they thought the stock price was going higher soon? If you're so much smarter than them, why aren't you running the company?
Nearly all stocks trading in the U.S. have stakes held by large outside investors. But not all of these stocks are heading up in price. Why do you equate this latest round of financing with a guarantee of price rise?
In fact, this round of financing is NOT funded by long-term investors. Investors are willing to buy at market prices, believeing the stock price is likely to appreciate. That's everyone on this board. The financeers in this case were only willing to buy because they could buy at 2/3 of the market price. They are looking to lock in that price difference for a quick profit; they are not looking to invest in the company. Friday they started shorting the stock, every share shorted above $2.12 locks in a profit. Once they have two million shares shorted they no longer have market risk since they can convert the preffered into two million common shares. Often, the terms of the preffered make it slightly better to hold the "flat" position rather than convert. This type of financing is common for bulletin board companies; I'm always surprised the newbies consider the financing to be an "investment".
Two million shares will be a lot for the market to absord, so you can expect to see the price drop for a while.