This Day On The Street
Continue to site
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Buy Pandora Despite the Secondary Offering

NEW YORK ( TheStreet) -- What does it mean if you own a stock that has just announced a secondary offering? A lot of people think a secondary offering is a bad thing. Well, it can be. But many times, it can also be a good thing.

A secondary offering in a lousy stock is almost always a bad thing. It usually means the company is running out of money and it needs to keep raising more to survive.

Generally speaking, an owner of a lousy stock that does a secondary offering takes a big dilutive hit in ownership of company. A secondary offering obviously also dilutes the earnings per share of a company. But, a secondary offering by a good company is not necessarily a bad thing.

A second offering can indicate that a lot of good things are happening at the company. It can be an indication that there is strong demand for the shares and that the company is growing.

Generally speaking, a good company will proceed with a second offering because its shares are in demand and appreciating. So a company will then decide to take advantage of the favorable markets and favorable opinion towards their stock to float more shares and raise some cash.

This allows it to take the proceeds from that secondary offering of shares and reinvest them into the company in order to grow it further in spite of the current shareholders being diluted according to the size of the secondary offering.

But the hope is that, in the long run, the shareholders will be rewarded because the company will have successfully grown as a result of the proceeds of the secondary offering being used wisely.

Now, a secondary offering is obviously different from an initial public offering. When Twitter goes public at some point in the future, it will do an initial public offering.

In other words, Twitter will be selling current insider shares to the general public and there will also be an offering of new public shares that have been printed or established for the public to buy. So no longer will Twitter be a privately traded company, it will be a publicly traded company.

1 of 3

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
SYM TRADE IT LAST %CHG
P $17.19 -0.87%
AAPL $126.78 -0.64%
FB $84.13 1.30%
GOOG $535.51 0.02%
TSLA $207.73 1.20%

Markets

DOW 17,975.07 -59.86 -0.33%
S&P 500 2,101.13 +0.73 0.03%
NASDAQ 5,015.6680 +21.0660 0.42%

Partners Compare Online Brokers

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs