Should You Buy Viking Therapeutics Stock While It Trades Below Its $35 Offering Price?
Key Points
Viking Therapeutics raised $575 million in a supplementary public offering after positive trial results.
Share dilution reduces EPS by about 7.2%, and the earnings yield per dollar invested is now 14.4% lower.
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Viking Therapeutics (NASDAQ: VKTX) stock soared after the release of excellent top-line results from a maintenance study of its weight-loss drug VK2735, and the company promptly moved to ultimately raise $575 million via a supplementary public offering of common stock ($316.2 million worth at $35) and $258.8 million in convertible senior notes. However, the stock now trades below the $35 price of this latest common equity offering. Is it worth buying?
Viking Therapeutics stock
On balance, the answer is: If you were bullish on the stock before the top-line results came out, it makes sense to buy it now, too.
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Let's run some simple numbers. At the time of writing, Viking's stock is up only 8.4% from the day before the results announcement. However, the share count before the stock offering was 116.6 million, and the company closed on another 9 million shares. The increase in share count dilutes existing shareholders, and you can pencil in a rough reduction in earnings per share of about 7.2%, or 0.928 of its previous level.
However, the share price rose 8.44%, so earnings per share per dollar invested at the current share price have also changed. You can calculate this by dividing 0.928 by 1.084 (the increased share price), which gives 0.856, a 14.4% reduction.
In plain English, assuming the same earnings, the earnings yield per dollar invested at today's price will be 14.4% lower.
So is Viking Therapeutics stock a buy?
While the top-line results were excellent, they didn't include the oral pill (which will come in the second part of the trial), but they were good enough to somewhat de-risk maintenance dosing with injectable VK2735. That's a major plus in itself and justifies the de facto 14.4% loss in earnings power per dollar (assuming unchanged earnings) for investors, both before and after the results release and the subsequent common stock offering.
Should you buy stock in Viking Therapeutics right now?
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Lee Samaha has no position in any of the stocks mentioned. The Motley Fool recommends Viking Therapeutics. The Motley Fool has a disclosure policy.
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