Intuitive Machines’ (LUNR) robotic lander touches down on the Moon’s surface around 12:30 p.m. today, the second time it has successfully reached the lunar surface. Yet LUNR stock is falling hard in pre-market trading Thursday, down 4%, and giving up nearly all of yesterday’s gains.
Because Intuitive Machines is the only private sector company to have reached the Moon, this should be a cause for celebration that boosts its stock. Yet the fact it’s falling, and not for the reasons you might think, makes this a buying opportunity.
The primary driver for LUNR’s fall appears to be the impending expiration of its warrants. Intuitive Machines recently announced it would redeem all of its outstanding warrants by 5:00 p.m. today. It has the right to redeem them because its Class A stock exceeded $18 per share for 20 trading days within a 30-day period ending Jan. 30. That triggered the redemption clause from the 2021 warrant agreement.
Investors holding LUNRW warrants face a choice: exercise them at $11.50 per share to acquire LUNR stock, which closed yesterday at $14.11 per share, or accept the $0.01 redemption price, as unexercised warrants will be rendered worthless after today.
The logical move is to exercise, generating $260.3 million for the company and issuing 22.6 million new shares. However, this rush to exercise is flooding the market with sell orders, as warrant holders seek to cash out, creating downward pressure on both warrants, which were down as much as 20% in premarket trading, and LUNR stock.
Shares are falling because the new stock could dilute existing shareholders by about 25%, given the current 91.3 million share float. Yet, this overlooks the cash influx bolstering Intuitive Machines’ balance sheet. At the end of Q3, LUNR had $90 million in cash with no debt, which can potentially fund its $4.8 billion NASA contract for lunar communications.
With the deadline today, the crash reflects a rush to exit rather than a fundamental flaw in Intuitive Machines, making LUNR stock an excellent buy at this newly discounted price.
