Capstone Turbine Corporation (NASDAQ:CPST) Sinks As New Stock Offering Dilutes Shareholders

[[tagnumber 0]][[tagnumber 1]]While Capstone Turbine Corporation (NASDAQ:CPST) was among the top gaining stocks on Monday, it found itself to the very opposite end of the spectrum yesterday as it went down 24% to $1.90 per share, thus joining the top daily losers ranks.[[tagnumber 2]] [[tagnumber 0]]And if there were no hard facts behind the jump at the start of the week, the crash that followed on Tuesday is directly related to a secondary public offering announced at the eleventh hour after market close on Monday. If this were not enough, the announcement contained no guidelines whatsoever in terms of offering price, number of units and duration. Of course, all the missing pieces were revealed on the very next day in a new press release outlining total expected proceeds going north of $14 million. So what‘s so bad about secondary offerings that stocks tend to lose value in the aftermath?[[tagnumber 2]] [[tagnumber 0]]Two interrelated things – dilution and lower EPS – and if you do the math, you will all understand why. For that‘s what‘s in store for Capstone when the next Q4 and FY 2015 10–K sees the light of day. Of course, there are a lot of factors that could incentivize management to embark on a new stock offering, especially when working capital troubles appear to be looming on the horizon, because that‘s what the company has said it would use the proceeds for, according to the corresponding press release.[[tagnumber 2]] [[tagnumber 0]][[tagnumber 8]]Before we continue, let us take a look at Capstone‘s most recent financials. On the one hand, the company has managed to maintain a positive net working capital in each of the last four quarters on record. On the other hand, Capstone has failed to make a single dime over the same period and has instead incurred a cumulative loss in excess of $34 million, which of course means that its EPS ratio has also remained stuck in the red. We know that diluting actions such as this secondary offering does decrease earnings per share, as long as the company is actually making money. For the time being, Capstone has incurred losses in each of the last few quarters, which means it registered losses per share rather than earnings per share. By increasing the amount of its outstanding stock, management could technically reduce losses on a per–share basis.[[tagnumber 2]] [[tagnumber 0]]While the latter sounds good at first sight, it could only work in the shortest of terms because it is based on nothing but a mathematical manoeuvre. A long–lasting EPS improvement will have to be achieved the old–fashioned, yet tried and tested way involving optimizing and expanding the business until it starts to generate positive cash flows? Does this prospect seem feasible? Not in 2016, according to analysts‘ earnings forecasts. As for what shorters think, we will have to wait until the next settlement date at the end of the month. On a bright note, we do see some insider confidence in the stock as evidenced by the positive net purchasing activity over the last 3 months.[[tagnumber 2]] [[tagnumber 0]]An hour or so into today‘s session, CPST is still traded around its yesterday close of $1.90 per share.[[tagnumber 2]]