Why Unusual Machines Stock Just Crashed
Key Points
Drones parts maker Unusual Machines will sell 8.8 million new shares to raise $150 million in new cash.
The move will dilute shareholders -- and leave Unusual Machines unusually flush with cash.
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Unusual Machines (NYSEMKT: UMAC) stock tumbled 15.6% through 11:55 a.m. ET Friday after announcing (last night) that it planned to issue and sell new shares to raise cash to "expand its U.S. drone parts inventory and for working capital and general corporate purposes."
(Translation: Unusual Machines isn't making enough money selling drones and drone components, so it must sell shares instead.)
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This morning, the other shoe dropped. Unusual Machines, which has a market capitalization of only $723 million, will sell $150 million worth of new shares. It will also be selling them for $17 each, versus the company's closing share price last night of $18.60.
Image source: Getty Images.
Unusual Machines' unusual decision
Investors didn't like that news at all. To raise $150 million at $17 a share, Unusual Machines must sell 8.8 million new shares. With 38.9 million shares outstanding today, Unusual Machines will dilute shareholders' ownership stake by 22.6%.
What's strange about this is that Unusual Machines doesn't seem to actually need $150 million yet. According to data from S&P Global Market Intelligence, Unusual Machines currently has about $140 million in the bank and is only burning cash at about $23 million a year.
This seems to imply Unusual Machines has more than six years' worth of cash in the bank before it needs to raise more.
Why sell now, Unusual Machines?
And yet it is raising more cash. Why?
The obvious answer is: Because it can. Before making today's announcement, Unusual Machines stock had nearly tripled in price over the past year. With its shares so richly valued, now may look like a great time to grab all the cash it can, so it never runs out.
Looked at that way, Unusual Machines seems to be making the right choice.
Should you buy stock in Unusual Machines right now?
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Rich Smith 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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