Why Did STEM Stock Just Hit a Record Low?

  • Shares of Stem (STEM) stock made fresh all-time lows today.
  • This came on news the company will raise $175 in a convertible note offering.
  • Investors clearly don’t like the potential dilution resulting from this deal, voting with their pocketbooks.
STEM stock - Why Did STEM Stock Just Hit a Record Low?

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One of today’s biggest movers to the downside is Stem (NYSE:STEM). This energy-storage provider has hit a fresh record low today, plunging in earlier trading to below $5 per share. A beneficiary of the previous bull market boom in 2021, STEM stock dropped more than 90% below its all-time high in today’s session.

The key catalyst driving this move today is an announced $175 million convertible note offering. These so-called “green” convertible senior notes will be due in 2030, and are unsecured.

It’s unclear what the conversion price for these notes will be. That’s because the “interest rate, initial conversion rate and other terms of the Notes will be determined at the pricing of the Offering.” Thus, there’s little for investors to go on, outside of the overall size of this deal and where the company intends to use the funds.

Stem has noted that privately negotiated capped call transactions will be made with certain counterparties. These transactions involve the unwinding of hedges and/or the conversion of existing notes, in an attempt to reduce the impact of these conversions or transactions on shareholders (namely, dilution). Some of the funds will also be used to purchase and cancel other outstanding convertible notes. The remainder will go toward general corporate purposes.

Let’s dive more into why STEM stock is sinking to a fresh low today.

Why Is STEM Stock Plunging Today?

Any time a stock makes a new all-time low, investors take notice. Stem has been on a downward trajectory for some time, despite otherwise bullish momentum in the energy storage space.

An unprofitable stock, Stem’s current outlook may not excite many growth investors, given the quality of other options out there right now. Additionally, the company’s decision to raise capital in this market (and at these rates) appears to have some investors jittery. That is, even if some of these funds are being used to repurchase existing notes.

Personally, today’s market reaction to Stem’s announced capital raise wasn’t what I was expecting. Sure, this is an unfavorable market for less-than-profitable growth companies. However, given the secular tailwinds in this space, I would have expected to see less volatility with today’s announcement.

In either case, this is a company that’s now found its way onto my watchlist. We’ll see how it performs from here.

On the date of publication, Chris MacDonald did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Chris MacDonald’s love for investing led him to pursue an MBA in Finance and take on a number of management roles in corporate finance and venture capital over the past 15 years. His experience as a financial analyst in the past, coupled with his fervor for finding undervalued growth opportunities, contribute to his conservative, long-term investing perspective.

Article printed from InvestorPlace Media, https://investorplace.com/2023/03/why-did-stem-stock-just-hit-a-record-low/.

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