Why Intuitive Machines Stock Just Blew a Gasket

Key Points

• Intuitive Machines is raising up to $350 million in cash through a convertible debt offering.

• Most of the money will be used for general corporate purposes.

• Some money will be used to limit stock dilution.

• 10 stocks we like better than Intuitive Machines ›

Shares of Intuitive Machines (NASDAQ: LUNR), owner of the first U.S. lunar lander to land on the moon in the past 50 years, tumbled 11.5% through 9:40 a.m. ET this morning after announcing an "upsized" sale of convertible debt.

Last night, the company planned to sell only $250 million worth of "convertible senior notes due 2030." But demand for the offering was so strong that this morning, Intuitive said it will sell $300 million instead.

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Quick! Grab that cash!

Convertible debt costs Intuitive Machines interest until it's converted into stock at some point in the future -- new shares that will dilute current shareholders out of part of their ownership stake in the company.

These are the downsides to a convertible debt offering, and explain why the stock is selling off. But what about the upside that might make Intuitive Machines stock a buy?

Is Intuitive Machines stock a buy?

Well, the obvious upside is that Intuitive Machines will gain access to $300 million, and potentially as much as $345 million if underwriters exercise their overallotment option (minus about $10 million in fees). It will also give Intuitive access to this cash at a very attractive interest rate of only 2.5% (up until the point the debt converts into stock).

Part of the cash will be used to limit stock dilution, Intuitive explains, through "capped call" transactions. The rest of the money will be used for "general corporate purposes," including, one presumes, the costs of building a Near Space Network that will help Intuitive perform on its big $4.8 billion NASA contract.

As an investment in Intuitive's future, taking out a $350 million loan to secure a $4.8 billion revenue stream seems sound logic to me.

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Rich Smith has positions in Intuitive Machines. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.