Professor Elam

Friday May 20, 2016

Abraxas announced it would price its new 25 million share offering at $1.

The stock ended trade yesterday at $1.33. Needless to say this announcement took the current shares down to the $1 level, a drop of 23%.

This is known as 'watering the stock.'  And I don't mean as in watering livestock.  Notice the market capitalization  is about $107 million.   At a  buck a share that means there are about one hundred and seven million shares outstanding, which is to say, way too many. Now at one sixth of the price high two years ago, the company is trying to raise money. This leads to too many shares out. It will be too hard for the company to dramatically improve E/S with this many shares out.  Hence the stock is said to be watered as in watered down.