Markets

Why Sailpoint Technologies Stock Dropped 17% in September

What happened

Shares of Sailpoint Technologies (NYSE: SAIL) declined 17% in September, according to data from S&P Global Market Intelligence, after the enterprise identity-governance specialist held a potentially dilutive offering of convertible debt.

So what

Sailpoint's drop last month began in earnest on Sept. 18, when the company initially proposed a private offering of $300 million of convertible senior notes, as well as a 13-day option for the purchasers to buy up to an additional $50 million aggregate principal of the notes. Two days later, the company chose to increase the offering to $350 million along with the same 13-day, $50 million additional option.

When all was said and done and the sale of the notes closed on Sept. 24, Sailpoint collected net proceeds of roughly $391 million from the offering -- a hefty sum considering its entire market capitalization today stands at a relatively small $1.7 billion. The company said it plans to use the cash "for general corporate purposes, including working capital, operating expenses, and capital expenditures."

Red arrow chart indicating losses on top of stock market numbers on a colorful display.

Image source: Getty Images.

Now what

As for the potential dilution, the notes are set to mature on Sept. 15, 2024, at a rate of 35.1849 shares of common stock per $1,000 in principal, which equates to an initial conversion price of $28.42 per share (a 37.5% premium from Sailpoint's closing price on Sept. 19). To be fair, Sailpoint also used roughly $37.1 million of its proceeds to enter into privately negotiated capped call transactions with the note's purchasers to help reduce the dilution to common shareholders. 

Nonetheless -- and regardless of how Sailpoint uses its freshly bolstered cash supply to create value for its stakeholders -- it was no surprise to see the stock fall as the market digested the impact of its convertible note offering.

10 stocks we like better than SailPoint Technologies
When investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has quadrupled the market.*

David and Tom just revealed what they believe are the ten best stocks for investors to buy right now... and SailPoint Technologies wasn't one of them! That's right -- they think these 10 stocks are even better buys.

See the 10 stocks

 

*Stock Advisor returns as of June 1, 2019

 

Steve Symington has no position in any of the stocks mentioned. The Motley Fool recommends SailPoint Technologies. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

In This Story

SAIL

The Motley Fool

Founded in 1993 in Alexandria, VA., by brothers David and Tom Gardner, The Motley Fool is a multimedia financial-services company dedicated to building the world's greatest investment community. Reaching millions of people each month through its website, books, newspaper column, radio show, television appearances, and subscription newsletter services, The Motley Fool champions shareholder values and advocates tirelessly for the individual investor. The company's name was taken from Shakespeare, whose wise fools both instructed and amused, and could speak the truth to the king -- without getting their heads lopped off.

Learn More