Stock issuers can register fresh issues of their securities on the Securities and Exchange Commission’s (SEC) shelves without selling the full issue all at once. There are no fines or re-registration fees for selling parts of the issue over a 3-year time period.
Is a shelf offering good or bad?
Just as if everything around your bait had vanished into thin air, so did the entire aquatic habitat around it.
The bass were just beginning to come to life when we were there last year. Using a soft plastic worm, I created this “Wacky Rig.” You wouldn’t believe it, but it works!
You can see for yourself here. Because the water was so cool, this smallmouth bass was a bit sluggish, but I was able to get him to inhale the bait by carefully pushing it past his snout. In the end, it was just one of many.
One of my two sons was holding the net as he released the fish into the lake. When these fish consume wild bait, such as crayfish and minnows, they become more robust, allowing them to carry out life-sustaining actions with greater efficiency.
Secondary Stock Offering: A Bullish Growth Stock Buy Signal
A well-received secondary stock offering, or a well-received convertible note issuance, is the stock market parallel to a huge bass swallowing a meal.
To obtain cash in these situations, the company either issues fresh shares to the public (secondary stock offering) or low-interest notes that can be converted into shares, often within five to ten years (convertible note offering).
The shares are promptly absorbed by the market after the company completes the offering at a reasonable price.
The market “inhales” the new shares, as if they were fish. After the secondary sale, the stock’s trajectory remained largely unchanged. With the fresh funds, the company is able to further its expansion plans.
Market watchers of both the short and long term alike see successful secondary stock or convertible note offerings in the same way. You may see Jacob Mintz’s thoughts on the matter in a brief conversation I had with him some time ago.
Jacob isn’t a bass fisherman, so he didn’t understand my analogy the first time around. Nonetheless, it’s now a term we both use whenever these kinds of opportunities arise.
For small-cap and early-stage growth businesses, a well-received secondary stock or convertible note offering is an exceptionally strong buy indication. The reason for this is that it indicates an enormous demand for a stock with a relatively modest public float or that is rapidly expanding.
It is possible for a stock to rise after an announcement that a firm is issuing shares to raise money for solid reasons, such as appealing acquisitions, to fund new product development, to grow a sales team to meet demand, and so on.
Many investors are willing to purchase newly issued shares in this optimistic scenario (or notes). And the market eats them up.
To see how Coupa Software (COUP) has grown since going public in 2016, check out this monthly chart of the company’s market capitalization: $17 billion.
In our conversation around two and a half years ago, Jacob mentioned this stock.
At 25.25 cents per share, Coupa’s first secondary offering was completed in April 2017. After the initial public offering, the stock soared and never returned to that price. A convertible note offering took place in June of this year.
In the chart, there is little information about how much money the company has raised. Moreover, there is nothing negative to say about it. After the secondary offerings, COUP continued to rise on the weekly chart (though it pulled back sharply this year after topping out at 369 in February).
Coupa’s stock offerings were devoured by the market, and the company continues to be a fantastic growth story. They were just a reasonable way for the corporation to raise growth-encouraging funds, and there was nothing wrong with them.
Everbridge (EVBG) has a market capitalization of $6.1 billion as of this writing. Since its initial public offering in September 2016, Everbridge has completed a number of capital raising. After each one, it’s risen a notch or two. The market devoured all of them like a lunker bass devours a crayfish.
How to Find the Market’s Best Early-Stage Growth Stocks
Too many investors believe that a secondary stock offering from a fast-growing company is harmful. It’s true that they are in some circumstances.
To keep the lights on and pay the employees, far too many corporations issue shares of stock. Because management is destroying value, these shares, which are often lousy investments, tend to fall (or at best move sideways) before and after the offering.
The most efficient approach to generate growth capital is through secondary stock offerings, which are common among small-cap and early-stage growth companies.
I recently recommended DraftKings (DKNG) in my Cabot Early Opportunities portfolio, which generated my subscribers a 27 percent return in just five months before we sold. Despite recent dips, it’s gained 372 percent in the last two years.
DraftKings has a market capitalization of more than $19 billion, making it a mid-cap stock at this point in time. In addition to raising funds and providing some institutional investors with a partial exit, last year’s secondary offering helped the run.
When your stock is in high demand, wouldn’t you want to increase capital? In addition to getting more for each new share issued, you don’t dilute current shareholders as much if the stock is strong versus weak. In the long run, that’s a positive thing. However, experts estimate DraftKings’ sales to more than double this year, which has also boosted the company’s success.
The bottom line is that secondary stock offerings are a positive and a catalyst for the rise of the share price of the company. It’s not enough to have a secondary offering, but with the appropriate stock, such as DKNG, it can be a game-changer.
What is the advantage of shelf registration?
There are numerous advantages to shelf registration, including the fact that a company can quickly provide shares when funds are needed or the market is more favorable.
Is a shelf offering a secondary offering?
It is possible to pre-register any sort of registered security through a shelf offering. A shelf offering can be a primary offering, such as the issuance of new common stock.
Also, it could be a resale of stock held by insiders of a firm or an initial public offering (IPO). Because corporations don’t have to go through the complete registration process every time they wish to issue new securities, shelf offerings are cost-effective.
Only companies that qualify as issuers can make use of shelf offers. Qualifying issuers meet the following criteria:
What does it mean when a company files for a mixed shelf offering?
If an issuer of equity registers an equity offering with the Securities and Exchange Commission (SEC), the SEC grants the issuing corporation an exemption from having to re-register for three years. This exemption allows the issuing corporation to issue the securities in parts or stages and not all at once over that period of time. This allows the company to take advantage of market conditions that may occur in the future by changing the date of the issue, as well as the price.
Why would a company do a shelf offering?
- Shelf offerings allow companies to register a new issue with the SEC, but allow them a three-year period of time to sell the offering instead of all at once.
- Companies can take advantage of more favorable market conditions by rescheduling fresh issue sales at a later date.
- Unissued shares are held in the company’s treasury stock, where they remain “on the shelf” until they are put up for sale.
How does Shelf Offering affect stock price?
A corporation may submit a shelf registration, which allows it to sell fresh shares as market conditions warrant, to limit the detrimental impacts of a secondary offering. Many investors use fully diluted share counts (as if all shelf stock has been issued) when calculating the dilution caused by a shelf registration. The impact of a shelf registration on a stock’s price may be less pronounced than the impact of a straight secondary offering, but it is still possible.
How long is shelf registration good for?
For the most part, shelf registrations are only valid for three years. If an issuer is eligible to submit a Form S-3, the first thing to ask is whether the issuer is a well-known, seasoned issuer that wants to have an effective shelf registration statement (WKSI).
What is a shelf loan?
Loans for Bonds. Bond money is technically a grant program, yet it is available in most states. First-time homebuyers can bring no or low down payments to closing with grant money created by state bonds, which is part of the Bond Money program. Aside from the fact that not all lenders will give these grants, they can be combined with most loan schemes.
Subprime. It’s possible that no matter how hard someone tries, they will never be able to reach the mark. Subprime loans are designed to help those who are struggling financially but yet need to buy a property. Often with high interest rates and odd terms, such as balloon payments or changeable rates that usually only rise, these are loans of last option. Only utilize them for short periods of time since they serve a useful purpose. If you’re taking out a subprime loan, it’s a good idea to have an exit strategy in place.
Loans that are sitting on the shelf. You may still be able to secure a “shelf loan” from a local credit union or small bank, but they’re becoming more and more difficult to come by. Because they’re made by your neighbors, these loans have favorable terms, although they’re usually for shorter periods than those offered by the big banks.. It’s worth asking the Bank of Anytown, USA whether they have an in-house mortgage product if you’re looking for a 15- or 20-year mortgage.
What is shelf prospectus?
This type of prospectus allows a single short form prospectus to be filed on SEDAR for a public offering where the issuer does not intend to immediately sell all of the securities being qualified once a receipt for the final short form prospectus has been received.
How does a shelf registration work?
Generally, the Securities and Exchange Commission (the “SEC”) will accept a shelf registration statement to register a public offering when no imminent plans to sell all securities being registered are in place. Multiple products can be registered under the same shelf registration statement.
What is a pro supp?
A document that includes information that was omitted from the shelf registration prospectus and is submitted with the SEC. The SEC staff does not have to declare the post-effective change effective in order to prevent delays for the issuer.
What is Form S-3 used for?
Securities and Exchange Commission (SEC) Form S-3 is a streamlined reporting form for companies that issue registered securities. An S-3 filing is used when a company wishes to obtain funds, typically after an initial public offering has taken place.
