RGS Energy, Inc. (OTCMKTS: RGSE) had an incredibly rough day in the market yesterday after announcing the exploration of strategic alternatives. While these types of announcements tend to lead to gains, this case was different.
The reason for the options exploration seems to be causing concern. Nonetheless, it’s possible that the declines may be creating an opportunity. Today, we’ll talk about:
- The exploration and why it caused RGSE stock to tumble;
- why this may be an opportunity; and
- what we’ll be watching for ahead.
RGSE Announces Strategic Exploration
As mentioned above, Real Goods Solar had a rough day in the market yesterday after announcing a strategic options exploration. While these types of announcements can lead to strong gains, in this case, we’re seeing anything but.
The reason that the strategic options exploration led to declines has to do with why RGSE is exploring options in the first place. Of course, the company plans on maximizing shareholder value, but it goes far further than that.
In the release, the company recognized the fact that it will take years to grow the POWERHOUSE brand and revenue streams. Moreover, this will also take significant investments in advertising.
As such, in order to provide the value to shareholders, the company will likely need to find a partner to share in the cost associated with marketing the process. In a statement, Dennis Lacey, CEO at RGSE, had the following to offer:
Over the past year, we made significant strides reinventing RGS Energy around the POWERHOUSE™ solar shingle that we believe will enable us to enjoy future growth and profitability. Acknowledging our previously stated view that it will require time, years in fact, to grow the POWERHOUSE™ brand and revenue streams, to ensure we are best positioned to address this opportunity with increased television advertising, services, access to customer bases, access to capital and the like, we believe now is an opportune time to consider whether pursuing complementary paths may enhance shareholder value.
Why The Declines May Be Presenting An Opportunity
While the reason for the strategic alternatives exploration is concerning, if all goes well, it will be a big win for RGS Energy investors. After all, the comapny plans on looking for potential partners and will be considering merger and acquisition opportunities.
If a partner comes along to share in the cost, it will relieve RGSE of the need to cover 100% of the cost associated with growth, helping to return value to shareholders. Moreover, if we see a merger/acquisition transaction, it will likely happen at a premium, offering yet another opportunity for a strong return of value. So, while the stop is dipping, it may be worth considering buying the dip.
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What We’ll Be Watching For Ahead
Moving forward, the CNA Finance team will continue to keep a close eye on RGS Energy. In particular, we’re interested in following the story surrounding the company’s continued work to find a partner or a company that is interested in acquiring it. Nonetheless, we’ll keep a close eye on the news and bring it to you as it breaks!
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