Why the CPI card group’s stock fell 12% today


What happened

Manufacturer’s shares of credit and debit cards CPI card group (NASDAQ: PMTS) had fallen 12.1% by 2 p.m. EDT Wednesday afternoon.

The company is only responsible for itself.

Image source: Getty Images.

So what

Capitalizing on an impressive rise in stock prices following last month’s earnings, CPI today filed an S-3 registration statement with the Securities and Exchange Commission. In it, the company said it plans to issue and sell $ 150 million in new common stock at some point in the future. At the current share price, that equates to about 4.3 million new shares – enough to dilute existing shareholders by about 28% of their stake in the company.

Simultaneously, CPI informed that its major shareholders – two subsidiaries of private equity fund Tricor Pacific Capital Partners – registered just under 6.6 million shares, which they currently hold, for resale. In total, these shares represent more than 58% of the company’s capital.

Now what

What does all of this mean for current CPI investors (and potential buyers)? The news here is both good and bad. On the good news side, raising $ 150 million in cash could allow CPI to pay off nearly half of its $ 317 million debt. (And indeed, in its filing, CPI indicated that “we will use the net proceeds from the sale of any common stock we offer for general corporate purposes, including debt repayment.”)

Additionally, the fact that Tricor is looking to get out of the stock means that CPI will no longer be under the majority control of a single owner, potentially making the company more attractive to more outside investors.

On the flip side, investors today are probably wondering if the reason CPI is raising cash is because its stock, which closed at $ 38.70 last night – up 97% from its trading level on results day – has finally peaked and is now doomed to fall. At the very least, the fact that Tricor is leaving the CPI suggests that Tricor thinks the stock has gone up. quite now have a nice weather to go out.

Many shareholders now seem to agree.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are heterogeneous! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.

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