FAMI Stock: Why Little-Known Farmmi Is Plunging 50% Today

Today, investors in Farmmi (NASDAQ:FAMI) and FAMI stock are down big. Shares of the agricultural player are down more than 55% at the time of writing.

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Today’s move follows a broader trend in which Chinese stocks remain in the crosshairs of bears. Nearly across the board, small- to large-cap Chinese stocks are seeing weakness today. It appears yet further acrimonious relations between President Joe Biden and Chinese President Xi Jinping is driving wariness in the stock market today.

That said, Farmmi’s rather outsized downside move obviously indicates something bigger is going on. After all, shiitake mushroom farming is a relatively stable business. Farmmi’s business model is one mainly focused on the Chinese mushrooms segment, with a range of other agricultural goods sold as well. There is some export-related exposure with this stock, so maybe a small slice of today’s decline can be tied to the overhang for Chinese stocks.

Let’s dive into the other key factor driving Farmmi lower today.

Secondary Offering Driving FAMI Stock Lower Today

Yesterday, Farmmi announced a rather large offering of 140 million shares of FAMI stock at 30 cents per share.

This price was a massive discount to the 80-cent level shares traded at yesterday. Accordingly, today’s selloff of FAMI stock to the 35-cent level is understandable.

The steep discount at play here intrigues me. Perhaps the company received the indication it wouldn’t be able to raise this secondary offering without such a discount. However, this sort of move is almost always viewed extremely negatively by the market. Indeed, investors ought to ask the question — why equity, and not debt? If the company could have borrowed the $42 million it’s expecting to raise with the offering and save its share price, investors may have been better off.

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Regardless, this is where we’re at today. Farmmi intends to use these funds for working capital and general corporate purposes. This deal is expected to close on Monday.

On the date of publication, Chris MacDonald did not have (either directly or indirectly) any positions in the securities mentioned in this article.

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