Shares of Nano Nuclear Energy (NASDAQ: NNE) sank 16% this week, according to data from S&P Global Market Intelligence. The nuclear energy start-up closed a private placement offering of common stock that will dilute shareholders, leading the stock to fall. Shares of the pre-revenue company are up 26% this year and up 500% since going public around one year ago.
Here’s why Nano Nuclear Energy stock was sinking this week, and whether the stock is a buy now.
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Raising money, new patents
Nano Nuclear Energy wants to build — as the name implies — tiny and portable micro nuclear reactors. It filed six patents this week related to its proposed Zeus Microreactor, which is still in development from its engineering team.
While patents may indicate a positive move for the stock, Nano Nuclear sank this week because of the pricing of its private placement stock offering to professional investors. Nano Nuclear sold shares of its common stock at a price of $27, which is below its current price of $30 and likely built some selling pressure on shares this week. Indeed, $105 million was raised in the offering, which covers many years of its current cash burn of $10.5 million a year.
The company needs the cash, because it does not have a working product yet. It is working on a micro reactor that has never been built before, and it is unclear if the technology will work. Shares outstanding have consistently climbed as Nano Nuclear has been in the public markets because of its capital needs, which will dilute long-term shareholder returns.
Image source: Getty Images.
The skinny on Nano Nuclear stock
It is easy to decide whether an investor should buy Nano Nuclear stock. The company does not think it will have a product until 2030 or later — and that is if it can even get the technology to work. It generates zero revenue today and will burn money for many years into the future. These are not good stocks to invest in.
An individual can hope that Nano Nuclear does well and invents a new way of electricity generation to better society. But hope is not an investment strategy. Smart investors will keep Nano Nuclear stock out of their portfolios because of how high risk this investment is. Don’t look at the 500% returns and expect the future to look like the past — this is a science project with a stock price attached to it.
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Brett Schafer 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.
