The Importance of Timing in Issuing Shares

A company that I really like did a dumb thing recently. It decided to undertake a major financing by issuing shares. This isn’t a big deal. This is why the stock market exists.

Only, it did so when its share price was significantly lower than its recent 52-week high. In a sense, the company diluted existing stockholders, when it could have done so at a much higher price just a few months earlier. The company could have raised a lot more money for the amount of shares it issued.

I’m talking about American Oriental Bioengineering, Inc. (NYSE/AOB). The company sold eight million common shares of itself, along with 500,000 common shares from the company’s CEO at $8.50 per share. On the day of the announcement, the stock was trading below this offer price. Now, it’s bounced back over $9.00 per share.

Of course, just one month ago the stock was trading over $10.00 per share. At the beginning of the year, the stock hit just over $14.00 per share. If the company was on the ball, it should have come to the market offering shares when the stock was trading around its 52-week high.

Now, it’s possible that the company’s investment bankers just couldn’t put the package together quickly enough to take advantage of the company’s high stock price. There is a lot of legal and regulatory work that gets done when a company wants to issue shares. Regardless, the company could have been a lot wealthier if it was quicker to take advantage of the stock market’s enthusiasm for its stock.

Still, I really like this company and I think it has a bright future. I’ve got no problem with companies issuing shares to raise money to expand their business. In this particular case, I think the timing was a small lapse in judgment.