ALPP’s stock has taken a nosedive the last two days after announcing that it entered into an agreement to sell up to 50m dollars in new shares, or about 35m new shares. This article will briefly get into the background on this, my thoughts on dilution in general, and why I think it’s illogical how far ALPP’s stock dropped just on news of dilution.
Now, I’ve already gotten into this a bit above, but let’s recap the offering. It is with a company called A.G.P./Alliance Global Partners which also managed their massive stock issuance about 12 months ago back when the share price was around 5-7 per share.
Through the arrangement, ALPP will be able to sell shares directly to Alliance or through investors lined up by Alliance in return for cash. There is not a specified price per share and/or discount to market price that I could find, but ALPP estimates that it will issue shares at approximately 1.42 per share. Not coincidentally, ALPP closed on March 10th at 1.43 per share 😊.
What this tells me is that ALPP and its agent should be able to issue shares fairly easily at a price at or very near the current market price for that day or the volume weighted average of the last few days. This is very important, but we’ll get to that.
My Thoughts on Dilution
My regular readers know that I am generally not opposed to dilution. In fact, I think it is a very effective tool for most legitimate smaller companies to raise capital without bending their current shareholders over a barrel.
Why is that?
Assuming a sale at a market price which is generally fair, a current shareholder will see their position diluted. There is no denying this. However, you will also have a smaller share in a company which now has more assets because of their cash injection it received.
This cash can then be redeployed by company management to grow the company. In many cases, that dilution is the only thing stopping that company from exponential growth. The analogy I like to use is, would you rather own 5% of a bankrupt company or 0.001% of Amazon (which is about 15 million dollars).
However, dilution gets such a bad rap because it is absolutely abused by con artists and scam companies on the OTC. In general, it is a cheap and easy way for scam CEO’s to raise capital from gullible investors and then squander it by paying themselves or bleeding the company dry through foolish investment.
So I will admit, in terms of sheer volume, most dilution on the OTC and in microcaps in general (we all know ALPP is not on the OTC anymore and trades on the NASDAQ) is scammy dilution in which regular retail investors lose their money.
But why do I think it isn’t necessarily bad for ALPP? Let’s get into it.
Why the Share Price Drop is Overblown
Listen, coming from someone who wants to buy back into ALPP, this share price drop of about 15% in two days is just silly. There has been literally no other news these last two days, and the overall market has been generally flat. So we have to assume this was because of ALPP’s dilution notice. Was a 15% drop really warranted just for them saying they’d issue about 35m new shares in addition the 162m they’ve already issued?
In my opinion, absolutely not. Here’s why:
First, ALPP is very clearly not a scammy company. They aren’t some goofy shell company with George Sharp as their CEO. This is a real company with real operations spanning multiple industries that are already generating revenue and cash flow. So for that fact alone, we should have some level of trust in how this capital will be redeployed.
Second, ALPP has a growing track record of using its capital raised through share issuances quite wisely. Last year when the company earned its retail investor success, it raised tens of millions in capital via share issuances and redeployed that cash excellently. It paid off debt, restructured other financial instruments, and most importantly, acquired companies with great potential.
There is so much to show for the money they used. It wasn’t just spent on some stupid consulting fees or something or a massive CEO bonus. We now have a steady bedrock of real and steady stabilizer companies generating cash flow for the business. We also have our drivers in the pipeline now poised to generate exponential revenue growth over the next several years, along with facilitators mixed in there.
So, in general, I am expecting very exciting things to come with this cash. Current investors should be excited, this likely means an acquisition is on the horizon and/or there is a new major internal capital expenditure project on the way.
Lastly, and I got into this up above, but dilution is only potentially beneficial to common shareholders if it is able to issue new shares near the market price. Toxic dilution, or those inherently harmful to common shareholders, is when shares are issued for free or at a significant discount to the current market price. Basically, the cash injected does not outweigh the negative impact of your diluted position.
As I’ve already outlined, these will be issued very near the current market price. Even if we think it’s a bit lower than it should be, we’re not talking about a 50% or 75% discount like we see in scammy companies. This is a stock standard way for a company to raise cash and I see absolutely nothing wrong with the mechanics of their deal.
In general, I think ALPP is still trying to wash the “OTC Stink” off of itself as I like to call it. So many companies do scammy stock dilution in the OTC, where ALPP traded not too long ago. So I think many people just have this knee jerk reaction with ALPP where if they see dilution, it’s automatically a bad thing. Even though ALPP never was a scammy OTC company, it still had to be in the same room as the garbage companies.
Over time, I think people will calm down about dilution with ALPP after it starts to show the fruits of its labors. But until then, expect some nonsense like this.
In short, I see absolutely nothing wrong with the dilution. In fact, I’m actually very excited to see where ALPP goes with this. I’m expecting a new acquisition to be honest, but it may just be for internal development. This dilution is not toxic in my opinion, and I have full faith in ALPP management to redeploy this capital in the best way possible for current shareholders.
Now, and I know this will come up, I sold ALPP a few weeks ago at around 1.70 to help pay for a real estate property down payment. I’ll be buying back in likely in about 4-6 weeks. So before anyone says I have some agenda here, what kind of an idiot would write a recommendation article on a company they want to buy into in 4-6 weeks… If anything I should be up here bashing it to buy at a cheaper price, but I’m not. I really do believe in ALPP and I’m really kicking myself that I can’t buy this dip. But such is life!
Obviously make your own investment decisions, but for new potential investors and current investors, in my opinion this price drop is not a cause for concern.
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DISCLAIMER – AT THE TIME OF WRITING THIS ARTICLE I DO NOT HAVE A POSITION, LONG OR SHORT, IN $ALPP. THIS ARTICLE IS NOT FINANCIAL ADVICE AND IS INTENDED ONLY FOR EDUCATIONAL PURPOSES. I AM NOT A FINANCIAL ADVISOR. AT THE TIME OF WRITING THIS ARTICLE, PERSONS AFFILIATED WITH THE COMPANY ANALYZED ABOVE MAY BE PROVIDING MONETARY COMPENSATION AS MONTHLY PATRONS THROUGH MY PATREON. THIS COMPENSATION IS NOT PROVIDED IN RETURN FOR ANY SERVICE, WRITING ABOUT A PARTICULAR TOPIC, AND/OR FAVORABLE OR UNFAVORABLE OPINIONS. MY PATREON SUPPORTERS HAVE NO INFLUENCE ON THE CONTENT OF MY ARTICLES.