Markets
MCS

Why the Marcus Corporation's Shares Plunged 34.6% on Thursday

What happened 

Shares of the Marcus Corporation (NYSE: MCS) fell as much as 34.6% in trading Thursday after the theater and hotel company announced a big debt offering. At 3:15 p.m. EDT today, shares were still down 33.4% for the day and not showing any signs of recovering. 

So what

Management announced today that it's launching an $87 million convertible-note offering, which could grow to $100 million if underwriters exercise their overallotment option. Proceeds will be used in part to buy a capped-call transaction to limit the potential dilution of shares. The rest will be used to pay down the company's revolving credit facility.

Cinema sign above a closed cinema.

Image source: Getty Images.

The sheer size of the transaction is surprising given Marcus' current $282 million market cap. And the fact that management thinks it needs that much cash at a time when recovery for both theaters and hotels is questionable shouldn't make any investor comfortable. 

Now what

Investors don't like dilution, but they also don't like companies that need to raise money just to survive. That's where the theater and hotel business is today. And for the Marcus Corporation, it's a double whammy. I would question buying shares since debt is added to the balance sheet, and that's why investors should be very cautious about thinking this is a buying opportunity today. 

10 stocks we like better than Marcus Corporation
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 tripled the market.*

David and Tom just revealed what they believe are the ten best stocks for investors to buy right now... and Marcus Corporation 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 August 1, 2020

 

Travis Hoium 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.

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

MCS

Latest Markets Videos

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