First Solar took a hit when it announced a secondary offering. Will the sun shine for the solar panel maker or are darker days ahead?
Shareholders usually don’t like seeing their shares diluted.
If a company is optimistic about future prospects, its owners are reluctant to share their good fortune with other people. They would rather raise funds through other means. Profits are always a good place to find money. If the company isn’t profitable at the moment, maybe some form of debt will do the job. But, sharing future profits? That’s last on the list.
So, you could imagine what First Solar investors thought yesterday when they heard the company was going to offer 8.5 million additional shares. That will boost total shares outstanding to 96.3 million, meaning shareholders now have to cut someone in on nearly 9% of whatever profits they were hoping to gain down the road.
Guess what happened to shares of the solar panel maker by the time the market closed — it was down by 10.76%.
Selling shares doesn’t always mean things are bad. If there are a lot of buyers clamoring for shares, selling equity can be a source of cheap funds for the company relative to, say, debt alternatives. You may be thrilled about diluting your shares by 9% if you think doing so will help you make a lot more than that in the future.
First Solar as an investment has thus far proven a lot of people wrong. When compiling its “Year Ahead 2013”, JPMorgan told investors that First Solar was the one stock to stay away from. Even accounting for yesterday’s drop, First Solar is up 51% in 2013.
But, is it a buy now that the company is selling more shares?
We asked Talking Numbers contributors Steve Cortes, Founder of Veracruz TJM, and Richard Ross, Global Technical Strategist at Auerbach Grayson, if there’s sunshine ahead for First Solar.
To hear analyses by Cortes and Ross, watch the video above.
Be sure to visit Talking Numbers on Friday as we interview the Commodities King, Dennis Gartman, on how he’s trading the gold market.
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