Why Red Cat Stock Popped Today

Red Cat Holdings (NASDAQ: RCAT) stock jumped 4.7% out of the gate this morning before quickly giving back much of its gains. As of 9:45 a.m. ET, the maker of military drones is still up 1.5%, however.

But does it deserve to be?

Image source: Getty Images.

Red Cat's electrifying news

Red Cat catalyzed early enthusiasm with a press release, announcing it has acquired Quaze, a "Québec-based developer of wireless power transfer technology for unmanned systems, drones and autonomous machines." Red Cat did not disclose its purchase price in the press release, but did disclose it in an 8-K filing with the SEC.

Husbanding its cash, Red Cat structured the purchase as an all-stock transaction, paying 1.9 million shares worth approximately $21 million to acquire its new subsidiary. If Quaze hits certain financial targets post-acquisition, Red Cat will owe a further $5 million at a later date (also payable in stock).

Is this good news for Red Cat?

Knowing the purchase price ($26 million) is part of the equation, but to really know if this is a good deal for Red Cat, we need to know how much revenue Quaze was generating -- and whether that revenue is profitable.

Red Cat didn't answer either of those questions in its SEC filing, however. What we do know is that the $26 million purchase price, if paid in shares, will dilute existing Red Cat shareholders by about 1.6% -- not a break-the-bank price, but not insignificant.

What will Red Cat get for this sum?

Basically, the ability to wirelessly charge drones where humans aren't around to plug them in -- for example, charging aerial drones from the decks of sea drones. It's an important capability to be sure.

We just don't know yet whether it will pay off financially for Red Cat.

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.