Aspen Aerogels (NYSE:ASPN) stock is up 20% today on news that the insulation and battery technology company no longer plans to issue additional common stock, protecting existing shareholders from dilution.
ASPN stock is soaring today after the Northborough, Massachusetts-based company said it has decided not to issue additional stock, a move that would have increased the number of shares outstanding, and diluted its share base. Shares fell 42% on June 28 immediately after the share offering was first announced. Year to date, Aspen Aerogels stock has fallen 80% to trade at $10.22 per share.
What Happened With ASPN Stock
In a media release, Aspen Aerogels said its decision not to proceed with the share offering was made because “current market conditions are not conducive for the offerings on terms that would be in the best interests of Aspen’s shareholders.” Shareholders are cheering the reversal and sending ASPN stock sharply higher today as a result of the decision.
Shareholders had a quick and extremely negative reaction to news earlier this week that Aspen Aerogels planned to issue new stock, sending ASPN stock sharply lower and causing management to rethink its decision. In general, investors view new stock offerings as a negative as they dilute the holdings of existing shareholders, causing many of them to sell.
Why It Matters
Aspen Aerogels is known as an “advanced materials company.” The company, which is located outside Boston, manufactures silica aerogel products that create thermal insulation. Its products are used in the batteries that power electric vehicles and for energy storage. Aspen Aerogels has been struggling to find its footing in the EV sector, which is likely why it planned to raise cash through a stock offering.
However, Aspen Aerogels has had some good news recently, having received orders from automotive giants General Motors (NYSE:GM) and Toyota (NYSE:TM). As as a result of those orders, Aspen Aerogels announced that it now expects full-year thermal barrier revenue from EVs to be in a range of $52 million to $62 million. That is much higher than its previous estimate of $18 million.
Management has said that, owing to the orders from GM and Toyota, it plans to accelerate the expansion its existing manufacturing facility, which could be another reason why the company is looking to raise cash.
What’s Next for Aspen Aerogels
It’s a good day to own ASPN stock. After a scary selloff earlier in the week, shares of Aspen Aerogels are rebounding today in decisive fashion. While this is a positive development in the short term, the company will still have to find ways to raise capital if it is serious about expanding its manufacturing capacity.
On the date of publication, Joel Baglole held a long position in GM. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
