Nikola Corporation (NASDAQ: NKLA) stock tumbled 10% in early trading Monday before recovering a bit. The fuel cell-powered truckmaker filed a form S-3 with the Securities and Exchange Commission (SEC) this morning, describing its plan to raise $500 million through issuances of new debt, convertible debt, and shares in the company.
Investors don't seem thrilled with the idea, however, and as of 10:10 a.m. ET, Nikola stock is still down 8.3%.
What is Nikola stock doing today?
Nikola is starting small (ish). In an explanatory 8-K filing, the company described how it will begin with an $80 million sale of convertible notes, then sell up to $80 million more over the next 18 months if its investors consent.
That's only $160 million so far, but the company's S-3 filing shows it is seeking permission to expand its cash-raising activities with a "universal shelf" value of up to $500 million eventually.
And here's the thing: Nikola Corporation's entire market capitalization currently sits well below $400 million. So, essentially, what Nikola has said today is that it intends to raise so much cash in the form of debt, shares, and debt convertible into shares that it could potentially dilute shareholders out of more than 50% of their ownership stakes in the company (if the convertible debt is ultimately converted into shares of the company).
Is Nikola stock a sell?
Nor would this be an isolated incident. Rather, it's starting to look like a pattern.
Nikola's share count has already grown by more than 170% over the last 18 months. With the company currently burning through cash at a rate of more than $510 million per year, even raising $500 million in new cash from this shelf offering probably won't be enough to get Nikola through another year.
On the contrary, in less than 12 months, investors should expect Nikola to dilute them again. No wonder investors have decided to sell Nikola stock today.
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Rich Smith has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
