The company is quickly diluting shareholder value, and more dilution could be on the way. What happened
Shares of Future FinTech Group (NASDAQ:FTFT) came crashing down on Friday as the company announced it’s completed its latest direct stock offering. This dilutes shareholder value, which is why the stock is down. As of 2:15 p.m. EST, the stock was down just 7%, but it had traded 15% lower earlier in the day.
Future FinTech announced a registered direct offering on Monday after the market closed. The offering allowed institutional investors to buy 3 million shares of its common stock at just $5 per share. Through this, the company raised $15 million, which on one hand is good. But the stock had traded as high as $7.11 per share the day of the announcement. So institutional investors got a big discount compared with retail investors.
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According to Future FinTech’s most recent quarterly filing, the company had about 42 million shares outstanding as of Sept. 30, 2020. Since then, it’s offered more than 7 million shares in direct offerings, bringing the total to almost 50 million. However, its most recently quarterly filing also notes the company is authorized for up to 60 million shares, opening the door for around 20% more dilution of shareholder value from here.
I’ve read a couple of bullish opinions on Future FinTech stock in recent days. But these fail to mention the company’s history. Right now, it describes itself as “a leading blockchain e-commerce company and a service provider for financial technology.” However, until recently the company was called SkyPeople Juice Group and was literally just a fruit juice business in China. Any bullish outlook that doesn’t calculate this unbelievable business pivot into the equation seems disingenuous at best.
Fintech and blockchain technologies are hard enough as it is — I’m not sure I’d entrust my hard-earned investing dollars to a fruit juice company pursuing these technologies with less than $1 million in revenue and less than $1 million in the bank prior to this registered offering.
It’s true that Future FinTech has made upbeat announcements in recent days. This includes the Chinese government approving some of its blockchain patents and the completion of software that allows e-commerce sites to accept bitcoin as a payment option. But these announcements came mere days before it announced its registered offering. Some companies release headline-grabbing news that lacks substance to get its stock to go up so it gets a better price. While I’ll stop short of saying that’s what’s happening here, the timing is suspect.
Considering Future FinTech can still issue 10 million more shares, investors should tread cautiously for now, especially if it announces another positive breakthrough. Any good news could be followed up quickly by more dilution.
Jon Quast has no position in any of the stocks mentioned. Jon Quast owns bitcoin tokens. The Motley Fool has no position in any of the stocks or cryptocurrencies mentioned. The Motley Fool has a disclosure policy.