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Market Lab Report
Please explain whether I should be concerned if the stock gaps down after it announces a secondary stock offering.

Q: KORS is my biggest holding which I picked up at your original email and have been adding onto. Thank you very much. As I'm sure you know, they announced a secondary stock offering [on March 9, 2012] and their price is down after hours. Historically, how does a secondary stock offering affect the price of a stock, both short and intermediate term? Would you handle this like any other news and base sell signals on violation of the moving average or handle it any differently?


Also, is this a normal hazard of investing in an IPO.



A: The announcement that a stock is doing a secondary usually causes the stock to have a small gap down in price. This should not normally be taken as a negative.


Successful IPOs often do secondaries to raise additional capital for their growing their operations, to fund R&D, and/or to market their products or services. In a good market, such a stock will often price successfully on the day it does its secondary, and will continue higher in the days and weeks ahead. But watch out if it breaks its secondary issue price. That could mean something is wrong with the stock or, more typically, a weak stock market environment is dragging even high quality stocks lower.

First published: 11 Mar 2012
Last updated: 13 Mar 2012