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Why Investors Soured on Dutch Bros Stock Today

Motley Fool - Thu Sep 7, 2023

What happened

Few investors smile when their companies announce a new share issue. The concern is almost always about dilution, as the pool of stock widens and reduces the per-share numbers that are so important to the market.

That feeling was evident Thursday with coffee slinger Dutch Bros(NYSE: BROS). On news of a fresh stock flotation, the company's share price closed the day almost 5% lower. Investors would have been better served hanging on to a clutch of prominent large-cap stocks, as the S&P 500 index only dipped by 0.3% on the day.

So what

Just after market hours on Wednesday, Dutch Bros announced that it is floating a public offering of $300 million worth of its common stock. And as is customary with such issues, the underwriters are expected to be granted an option to purchase more for their own coffers. In this case, the company will likely grant them a 30-day option to buy up to a total of $45 million worth of additional stock.

The underwriting syndicate is led by Bank of America Securities, JPMorgan Chase unit J.P. Morgan Securities, and Jefferies.

In the issue's prospectus, Dutch Bros said it would use $203 million of its proceeds to repay part of a senior secured credit facility managed by JPMorgan Chase. Currently, the coffee company has taken out just under $300 million in borrowings from this debt instrument.

It said it will also use the money for various types of financial investments, and to fund both working capital and "general corporate purposes."

Now what

Assuming the syndicate exercises its option in full, $345 million isn't especially dilutive to Dutch Bros' market cap, but it's getting there. At the moment, that figure stands at slightly under $4.4 billion.

The investor reaction to the news might have been overblown, then. However, it's well worth tracking the company's financial moves across the near future.

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JPMorgan Chase is an advertising partner of The Ascent, a Motley Fool company. Bank of America is an advertising partner of The Ascent, a Motley Fool company. Eric Volkman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Bank of America, JPMorgan Chase, and Jefferies Financial Group. The Motley Fool has a disclosure policy.

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