Why Newsmax Stock Is Crashing Today

Shares of Newsmax Media (NYSE: NMAX) are plunging on Friday. The media company's stock lost 18% as of 3:45 p.m. ET and was down as much as 23.6% earlier in the day. The steep decline comes as the S&P 500 (SNPINDEX: ^GSPC) and Nasdaq Composite (NASDAQINDEX: ^IXIC) lost 0.2% and 0.6%, respectively.

Newsmax announced today that the Securities and Exchange Commission (SEC) has approved its filing that will allow certain investors to sell their stock, leading to significant dilution.

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More shares on the market

Newsmax announced that the "SEC has declared effective the Newsmax resale registration statement on Form S-1." This means that the shares held by investors who had taken part in a previous private placement and until now were prohibited from trading their shares on the public market may now do so.

Image source: Getty Images.

Roughly 121 million shares could now enter the market. That is a massive influx of shares and represents a significant dilution risk. The SEC filing from the company acknowledges this, saying, "The Selling Stockholders may sell a substantial number of shares of our Class B Common Stock pursuant to this offering, which could cause the price of our Class B Common Stock to decline."

A challenging time

The company is operating deep in the red, losing $72 million on $171 million in sales. Despite the lackluster numbers and an equally poor balance sheet, the company's market capitalization is nearly $3 billion.

Newsmax was not a good investment before the release of these shares, and it is even less so now. I would stay far away from this stock.

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Johnny Rice 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.