Amid another soft market session, Troika Media (NASDAQ:TRKA) dubiously attracted attention, falling 12% on Tuesday morning before paring back losses to about 9% down in the early afternoon hours. Troika, which bills itself as a consumer engagement and customer acquisition consulting and solutions group, filed a shelf registration statement with the U.S. Securities and Exchange Commission (SEC). However, the dilutive implications hurt TRKA stock.
According to the accompanying press release, Troika filed a shelf registration statement on Form S-3 with the regulatory agency on April 7, 2023. Management previously announced on Feb. 23 that it will seek “to optimize the Company’s balance sheet and address its legacy capital structure, including its senior secured debt and to explore strategic alternatives.” Thus, the recent action represents one of these alternative pathways.
Per Investopedia, a shelf offering represents a provision allowing an equity issuer to register new securities without selling the entire batch in one shot. Instead, the issuer can sell portions of total securities over a three-year period without re-registration requirements or penalties. Aside from cost savings, a key advantage of shelf offerings centers on control.
For Troika, management can potentially wait for favorable market conditions before deploying new issues of TRKA stock. Of course, the downside that Investopedia points out is dilution. “Whenever a company sells new shares, this reduces the value of existing shares.”
TRKA Stock Intrigues but Presents High Risks
Although TRKA stock suffered sharp volatility for Tuesday’s session, speculators appreciate its mobility in the charts. Notably, TRKA has gained roughly 140% since the beginning of this year. Better yet, it’s not just blind enthusiasm that bolsters Troika shares.
Last month, InvestorPlace’s Louis Navellier targeted TRKA stock as a high-risk, high-reward growth opportunity. Notably, even with Tuesday’s red ink, shares gained about 6% over the past 30 days. Navellier mentioned strong revenue trends and massive improvements in adjusted EBITDA as bullish factors to consider. At the time, Troika scored a “B” on Navellier’s Portfolio Grader.
While compelling to market gamblers, TRKA stock may present an unacceptable risk to conservative investors. According to the investment research platform Gurufocus, Troika suffers from five red flags and no redeeming positive factors.
Among the concerns, Troika continues to issue new debt. In the past three years, the company expanded this liabilities line item to the tune of $66.5 million. Also, its Altman Z-Score slipped to 0.66 below breakeven. This metric indicates distress and implies bankruptcy possibility in the next two years.
While Troika’s sales trend impresses — posting a three-year revenue growth rate of 31% — the bottom line is a mess. The company’s net margin fell to 14.54% below parity on a trailing-year basis. Therefore, extreme caution is necessary for TRKA stock.
Why It Matters
Although Troika represents a highly speculative entity, according to TipRanks, the few portfolios it surveys that hold TRKA stock love it, rating sentiment as very positive. In the past month, Troika shareholders gained, on average, 7.8%.
On the date of publication, Josh Enomoto 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.